Price and Pay Code

– in the House of Commons at 12:00 am on 5th March 1973.

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3.45 p.m.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I beg to move That this House takes note of the Consultative Document on the Price and Pay Code (Command Paper No. 5247).

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

I should inform the House that I have selected the amendment in the name of the Leader of the Opposition and his right hon. Friends—to leave out from 'House' to end of the Question and to add instead thereof: 'has no confidence in the policies described in the consultative document on the Price and Pay Code (Command Paper No. 5247) and believes that the problems of inflation now require the adoption of socialist policies democratically controlled by Parliament along the lines indicated in the Joint Statement issued by the Labour Party and the Trades Union Congress on 28th February'.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

Since publication on 17th January of the Government's White Paper on the second stage of our counter-inflation policy, the House has been able to spend four days discussing the principles of that policy and the terms of the Bill and to give effect to it. During the course of Second Reading debate on 29th January I gave the House an assurance that there would be an opportunity to debate the provisions of the Price and Pay Code, provided for by Clause 2 of that Bill, before the code became operative. The intention today is to give the House an opportunity to debate the proposals for the code contained in Section 2 of the Green Paper that is now before us.

Sections 3 and 4 of that Green Paper contain, respectively, proposals for the administration of dividend control and for the notification and reporting of price and pay proposals. Those proposals will be the subject of separate orders under the Bill. The status of the code is by now well known. It is intended to serve, in accordance with Clause 2 of the Bill, as instructions to the two agencies—the Price Commission and the Pay Board—and as guidance to all those concerned in the determination of prices and pay.

It will be the task of the agencies to exercise their powers, in accordance with Clauses 6 and 7 of the Bill, so as to ensure that the provisions of the code are implemented. They will, of course, be required—by virtue of the Clause inserted in the Bill last week—to publish quarterly reports on their work. It is the task of Ministers to formulate and propose the code. And it is for Parliament to approve the terms of the code.

The time for that final approval by the House is not yet, because there has first to be a process of consultation with representatives of consumers, distributors, employers and employees.

That process of consultation is now in progress. I take this opportunity of emphasising that the Government are more than willing, in course of that process, to receive further representations about the form of the code from the TUC. And we are anxious, too, to take account of the views of Parliament. That is, of course, the principal purpose of today's debate. Against that background, I now commend these proposals to the House. And I do so upon the basis that they are balanced and fair—[HON. MEMBERS: "Oh."]—and likely, when taken together, to be effective for our overriding purpose, which is the restraint of inflation.

Unlike the proposals lately put forward by the Opposition, this code does, of course, contain provisions for dealing alike with pay as well as prices. As the House would expect, I intend to deal mainly with the prices section of the code—and to leave it to my right hon. Friend the Secretary of State for Employment to discuss the pay provisions in the code.

I want, however to say this about the pay section of the code. It is, in the Government's view, an essential feature of our policy against inflation. It is entirely idle to believe that the problem of rising prices will yield to a policy that does not contain clear and effective proposals for the control of incomes as well. That is why the second section of the draft code contains firm proposals to assist in the determination of pay. Such firmness is absolutely essential if we are to fulfil the first principle set out in paragraph 75 of the Green paper—to limit the rate of increase of pay in money terms to a level more in line with the growth of national output so as to reduce the rate of price inflation and improve the prospect for sustained faster growth in real earnings. That is the heart of the matter on the pay side. If we pay ourselves more and more in money terms, we shall end up by receiving less and less in real terms and less and less in money's worth.

That is why, on the pay side, there can be no modification of the central principles of the pay limit, as set out in paragraphs 83 to 94 of the Green Paper. That is why on the pay side there can be no exceptions, or special cases. That is why the Government attach importance to each of the provisions in subsequent passages of the pay code which deal in turn with conditions of service, apart from basic pay, with special situations, like equal pay and personal increments, and with particular methods and systems of payment.

We commend the pay provisions to the House not only because they are firm, as they must be, but also because they are fair. That is underlined by the other principles set out in paragraph 75. They are written specifically first to facilitate an improvement in the position of the low paid, and secondly to leave significant room for real negotiation on the part of those who normally decide upon the amount, form and distribution of pay increases within the limit.

I remind the House that the pay limit itself is far from ungenerous. The limit proposed of £1 plus 4 per cent. is a substantial increase by any reasonable standards—that is, 7 or 8 per cent. at average levels of earnings and more than that as a percentage increase for the low paid.

Photo of Mr John Mendelson Mr John Mendelson , Penistone

The right hon. and learned Gentleman has just stressed the firmness of the pay provisions and said that they must not be altered. There must be no special cases, according to the right hon. and learned Gentleman. Does that mean that at the beginning of this week, in the light of the general industrial situation, the right hon. and learned Gentleman is saying on behalf of the Government that all normal conciliation machinery is suspended and will remain suspended and that none of the country's carefully built-up conciliation will be used in any case of industrial dispute?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I am saying no such thing. The machinery to which the hon. Gentleman refers remains available for all those who are willing to take advantage of it. In response to representations to the Government by and on behalf of the TUC, the pay limit suggested for stage 2 was designed to facilitate real negotiations about the distribution of each pay award and also to facilitate negotiations which could lead to settlements that were tilted more in the direction of the lower paid than the formal £1 plus 4 per cent. provided.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

Is the right hon. and learned Gentleman aware that some Opposition Members and perhaps some of his hon. Friends spent a good deal of the weekend in our hospitals trying to do some kind of emergency mediation in an increasingly desperate situation? Is he aware, further, that those who work in hospitals point out with some justice that there is a difference between 4 per cent. of less than £20 per week and 4 per cent. on anything above average wages? In this situation, given the urgency in our hospitals especially, is the right hon. and learned Gentleman as rigid as he makes out?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I am aware, as are the Government, of the extent to which those who are low paid always confront greater difficulties in a period of inflation. It is for that reason that this policy is of such importance to the low paid, and it is precisely for that reason that the pay limit has been tilted in favour of the lower paid. The policy is designed to assist the moderates, and I hope and believe that the moderates will rally to support the policy for that reason.

Photo of Sir John Hall Sir John Hall , Wycombe

Is not there a slight misunderstanding here? Is not it the Government's policy to allow 4 per cent. of the total award and not of individual wages, thereby enabling the low paid to get more than 4 per cent.?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I am grateful to my hon. Friend for his intervention. I ought to have made that clear. As my hon. Friend rightly says, the size of the pay package to be negotiated on in any given bargaining process is 4 per cent. of the total pay roll for that unit. It is designed specifically to permit negotiations to lead to a result titled towards the low paid, if that is what the unions desire.

I turn to the price provisions in the code. Beyond question they add up to a firm, stringent system of control. It is a system of control which is more rigorous than any system ever applied before. I understand why the CBI feels that a good deal is being asked of its members. The proposals reflect the Government's determination to tackle prices. But here, too, we believe that our proposals are fair and workable because they allow a proper measure of flexibility between different circumstances.

I emphasise one aspect of the way in which the price provisions are intended to operate throughout stage 2. In contrast to stage 1, they do not depend on a system requiring application to be made before any increase in prices can be made. Instead, they depend on two factors: first, on a three-tier system of prior notification, of reporting and of spot checks on the smaller enterprises; secondly, on the application by enterprises themselves of the three guiding principles set out in paragraph 7 of the Green Paper.

I draw attention to those three guiding principles because each is important. The first is to limit the extent to which prices may be increased on account of increased costs and to secure reductions as a result of reduced costs. The second is to reinforce the control of prices by limiting profit margins per unit of sales or turnover while safeguarding investment. The third is in all these respects to reinforce the effects of competition and to secure its full benefits in the general level of prices. I emphasise that each of those principles, especially the first, is intended to be applied, with the minimum of exceptions, across the board.

The exceptions are listed in paragraph 10 and are confined essentially to three: first, exports; secondly, prices paid direct to overseas suppliers for imports; thirdly, prices paid to producers within the United Kingdom of certain fresh foods. But I emphasise that the system of control is complete in relation to any product from the moment when it has arrived, through the port or the farm gate, on to the market in this country. I emphasise, too, that the opportunity of profit from increased exports is without limit.

A moment ago, I emphasised the importance in the working of stage 2 of the system of notification and reporting of price increases that we propose. In laying down the limits for pre-notification and reporting we have striven to strike a balance between the need to submit to careful scrutiny price increases by large firms which act as market leaders and the need to avoid imposing an intolerable administrative burden on the Price Commission and on industry.

The financial limits proposed in paragraph 140 for Category I firms required to pre-notify should bring about 150 manufacturing and service enterprises into that category. Those companies account for about 50 per cent. of home sales. In addition it is intended to include about 30 to 40 companies which fall below these financial limits but which are market leaders in sectors of industry which are of special importance to consumers. Those companies will be specified by name in the order to be made under Clause 5.

In addition to the firms required to pre-notify price increases, medium-sized firms above the limits set out in paragraph 140 will be required to submit quarterly reports on their costs, prices and profits, and smaller firms above a certain minimum size will be required to keep records in an appropriate form and may be required to justify price increases to the Commission.

Photo of Sir John Hall Sir John Hall , Wycombe

Will firms making these quarterly returns also be required quarterly to reduce prices if it appears from the returns that they are exceeding their reference figures?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

If it appears that the profit levels derived from the reference figures are likely to be exceeded, price reductions should be made corresponding to the actual or expected excess.

Photo of Mr Tony Benn Mr Tony Benn , Bristol South East

In Committee I had an exchange with the Secretary of State for Employment about the use to which this power to get information would be put. Will the right hon. and learned Gentleman confirm publicly to the House that if necessary the Government intend to use the information which they get under Clause 12 to bring criminal prosecutions against firms which are in breach of the Act?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

Breaches of the Act would arise only when and if an order had been made. I am not certain whether the power could be used in that context. It is a situation which is very unlikely to apply.

Photo of Mr Joel Barnett Mr Joel Barnett , Heywood and Royton

In the event of a company making more profit than the Government want, which may happen, if an order is made telling the company that it should not and it then continues to make excessive profits, what will happen?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

If a firm is making a profit which is not in conformity with the code and an order is made against it and it fails to comply with that order, on the face of it the firm would be in breach of the order and liable to prosecution. One thing which would be manifest would be whether the firm had complied with an order requiring it to reduce prices. Its failure to do so would expose it to prosecution.

I turn now to consider some of the more important aspects of the price control system—[Interruption.] Hon. Gentlemen opposite seem to be in some state of mystery.

Photo of Mr David Stoddart Mr David Stoddart , Swindon

Will the right hon. and learned Gentleman give way?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I will first deal with this point. If a firm is charging prices which are not in conformity with the code and the Price Commission concludes that that is so and requires the firm to reduce its prices and makes an order to that effect and the firm fails to reduce its prices, it would be in breach of the order and expose itself to prosecution. That is a clear presentation of the state of affairs.

I turn now to the price control system.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I must get on. I begin with the fundamental concept of allowable costs set out in paragraph 17. The principle essentially is that both manufacturers and firms in service industries will be allowed to increase prices only to reflect increases in allowable costs. The profit margin limitation, described in paragraphs 38 to 41, is a back-up to the allowable costs system. In other words, a company may increase prices in accordance with the rules on allowable costs and there is no restriction on profits as such until these reach the reference level. From that point on the profit limitation overrides the allowable costs and the company is no longer allowed to increase prices to reflect allowable costs. Instead, it must maintain prices at the same level and, if necessary, reduce them to the extent required to keep within the profit limitation.

Photo of Mr Jock Bruce-Gardyne Mr Jock Bruce-Gardyne , South Angus

Last week my hon. Friend the Chief Secretary told us that as regards the limitation of profits in application to the banks, where it was made specifically clear that there could be no restriction of interest rates in the period ahead, it might be possible for my right hon. and learned Friend to say something more about the way that the absence of restraint on interest rates and the application of restriction on profits to the banks would be reconciled when we were discussing the code. Has he anything to tell us about that?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I was not going to deal with that situation at this stage because the matters which my hon. Friend said were then under discussion are still under discussion.

The costs which will be allowable for the calculation of a price increase have been closely defined in the consultative document. They are strictly limited to labour costs within the limit of the pay code, the costs of materials, bought-in components, fuel, rent, rates and interest. All other overhead costs are excluded, and firms will be required to absorb any increase in these. The base date for allowable costs is fixed by paragraph 18 at 1st October 1972. Increases in allowable costs which occurred before that date may not be taken into account, except where the Commission is satisfied that a firm would suffer exceptional hardship through being required to absorb such cost increases.

The CBI has pressed the Government very hard to accept an earlier date. The Government fully understand the feeling of CBI members who have absorbed significant increases over the 15 months before the price freeze began, and we are appreciative of the part which that restraint has played in slowing down the rate of inflation before the standstill. But the primary consideration in the Government's mind has been to frame the proposals on prices to match the exceptional circumstances of the introduction of Stage 2. In particular, we have to take account of the reduction in the rate of pay increases compared with the period just before the standstill. After weighing these factors carefully, the Government have concluded that cost increases before 1st October last year should not be allowed unless it is clear that there has been exceptional absorption of cost increases before that date.

One aspect of the rules relating to allowable costs is that relating to the productivity offset. Paragraph 19 of the code provides that in order to ensure that the benefits of increased productivity are passed on to the consumer, not more than 50 per cent. of allowable cost increases arising from pay increases may be passed on in the form of price increases.

As the House knows, during Stage 2 the pay code will not allow the introduction of new productivity agreements. Employees will not therefore receive any share of the benefits of increases in productivity during that period. It is in those circumstances that the Government consider it essential to ensure that this part of the benefits of improved productivity should be passed on to the consumer in the form of lower prices during Stage 2.

I readily admit that the problem of finding a totally practicable and equitable method of achieving that result is not without its difficulties. In particular, if different formulae were used for different sectors with different productivity trends there would be room for a considerable amount of argument about which sector a particular enterprise should be slotted into. We have therefore come forward with the proposition, which seems entirely reasonable in principle, that firms should be required to absorb a fixed proportion of their increased labour costs during Stage 2.

The proposal is simple and can be readily applied. It may give rise to some problems in certain areas, particularly in certain labour-intensive service industries where the growth in productivity may, through no fault of the industry, be below the national average. But the Government stand firm on the principle of requir- ing a substantial proportion of the benefits of increased productivity to be passed on in lower prices. We are, however, certainly willing to listen, during the period of consultation on this document, to suggestions of alternative methods of applying the productivity offset.

As I have already explained, the allowable costs system, which is the foundation of the price controls that we propose, is backed by control of net profit margins. The purpose of that limitation on net trading profits is not primarily to limit profits as such but to bring about price reductions. Total profits can increase as a result of increased sales volume, even though profit margins do not rise.

It has been argued that the profit margin limitation during Stage 2 will not be immediately effective, because the information needed to assess profitability will not be available during that time scale. As I pointed out earlier, the Price Commission will be receiving quarterly reports from firms in the first two categories and those reports will include information on profit margins. If audited financial accounts cannot be produced on a quarterly basis, management accounts will be accepted provided that these can in due course be reconciled with the audited final accounts. Where quarterly management accounts are not available, the firms concerned—these are only the large and medium-sized firms—will need to make arrangements to produce them. We shall expect enterprises to scrutinise these reports as the Price Commission will, and, where it becomes apparent that profit levels are likely to exceed the reference level, to take the action required by way of price reductions to keep within the limits.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

Is the right hon. and learned Gentleman aware that a large number of firms, not always the least efficient, do not know until the end of the year what their profit margins are? We have seen reports of a firm in difficulties during the last few weeks because at the end of its financial year, surprise, surprise, it found that it had made a big loss instead of a profit. This happens all the time. These provisions do not take account of such things.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

The hon. Gentleman need not point that out. The provision is effective, and it is designed to be effective so far as it can be. [Laughter.] Hon. Gentlemen may laugh, but these proposals are intended to apply to the larger firms which are subject to category 1 and category 2 reporting. They will enable those firms, perhaps more effectively than in the past, as well as the Price Commission, to monitor the way in which their profit patterns develop. It will not be able to cover every case. It will he interesting to know why hon. Gentlemen opposite should laugh at the proposition that we should endeavour to cover the matter as effectively as possible, which is what this machinery is designed to do.

Photo of Sir John Hall Sir John Hall , Wycombe

Does my right hon. and learned Friend agree that any large firm to which the provision applies which makes such a vast mistake in its profits at the end of the year deserves to be penalised?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I take my hon. Friend's point. As I have explained—and this is what hon. Gentlemen opposite do not appear to accept or understand—the arrangements for profit control through that kind of machinery are tough. They are intended to be so, but they are not unreasonable. It is important to notice that special dispensation is made for companies in a loss-making or low-profit situation. Paragraph 37 provides that where an enterprise is making a loss it may increase prices to cover its costs to the extent necessary to break even. And companies whose net profit represents a return on capital of less than 5 per cent. will be obliged to follow the allowable cost rules but will not be bound by the profit limitation until their profit margins reach the level specified in paragraphs 46 and 47 of the document.

Photo of Mr Stan Orme Mr Stan Orme , Salford West

How will the right hon. and learned Gentleman deal with multinational companies in this regard? He knows that they have power to readjust and rejig their expenditure and their profits, and they may do it in such a way as to get round the Government's proposals.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

The primary object of the code is to regulate prices. If the transfer or adjustment which the hon. Gentleman suggests affects prices, those prices, particularly of multinationals which are likely to be subject to reporting, will be scrutinised by the Price Commission. The point raised by the hon. Gentleman was raised by his right hon. Friend the Member for Bristol, South-East in a question to my right hon. Friend. Paragraph 28 of the White Paper makes it plain that where transfer prices differ from what they would be if the goods or services had been transferred on an arms length basis the Price Commission can substitute modified cost increases or profit margins. That is intended to deal with that problem.

Photo of Mr Russell Kerr Mr Russell Kerr , Feltham

The right hon. and learned Gentleman is kidding himself.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

The hon. Gentleman interrupts to say that we are kidding ourselves. Let him accept that the proposals contained in the code and complained of by British industry are the firmest and most effective ever put forward in this country. They are not a bad joke. The question is whether they are right for this code and for stage 2. They are designed for stage 2, and no one has been able to identify points at which they fall short of what is desirable or tolerable.

Photo of Mr David Stoddart Mr David Stoddart , Swindon

The right hon. and learned Gentleman is discriminating in giving way.

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

Order. There are many hon. Members who wish to take part in the debate.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

The House will be interested to know the arrangements proposed for the control of food prices. They, too, are as strict and as tight as they can be made. The prices of all semi-processed, processed and manufactured foodstuffs produced in the United Kingdom will be subject to the same regime of allowable cost and net profit margin limitations as the prices of all other manufactured goods. Firms will not be able to recover all their allowable costs through increased prices but will be required to absorb a proportion of increased labour costs resulting from pay increases.

Photo of Mr Peter Shore Mr Peter Shore , Stepney

These are comprehensive and detailed price controls. Can the right hon. and learned Gentleman say, as against the known formula of wage increases during phase 2, what he expects to be the rate of price increases during the same period?

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I cannot make a forecast of that kind. The right hon. Gentleman concedes an important point by acknowledging the extent to which these are effective and comprehensive controls.

The document also makes new proposals for the Price Commission's rôle in relation to fresh foods. First, a special panel of the Price Commission will deal with food and drink prices. Secondly, on a standing reference from Ministers the Price Commission will keep the price of fresh food under continuous review. Thirdly, the Price Commission will be able, again on a reference from Ministers, to carry out special inquiries into the circumstances affecting the price of any fresh food or drink.

Perhaps I may draw to a close by inviting the House to look ahead to the objectives that we are seeking to obtain.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I have given way a great deal already.

The first objective is to control inflation. The social implications of this are of tremendous importance. But in another sense controlling inflation is a means to a more important end, namely, the objective of growth. The Government's objectives have remained consistent over the last two and a half years—the achievement of a sustained level of growth and higher prosperity in real terms.

To obtain these objectives we have reduced taxation by an unprecedented degree, raised the level of social benefits, allowed the pound to float, and by tax and other changes we have provided a new base for industrial and regional regeneration on an unparalleled scale. It is within that context of growth that our counter-inflation programme and the formulation of the code is set.

It is with the objective of growth in mind that the Green Paper pays particular attention to the promotion of investment. Paragraph 49 of the document allows the Price Commission to give special consideration to applications for price increases where it can be demonstrated that the limits on allowable cost increases or on profit margins would seriously impede investment. Where the Price Commission is satisfied that that is so it may permit some departure from the normal rules.

The Government have said repeatedly that they recognise that a higher level of investment is necessary for the health of British industry and to achieve sustained economic growth at the level that we would like to see. The effect, therefore, of the measures which the Government are taking on prices and profits has to be seen in the context of overall economic strategy. The primary consideration which determines companies' decisions to invest is the confidence which they can have in the future market for their products, and that confidence in turn depends upon the view which they can take of future movements of wage and price levels and how these will affect their competitive position. That is why it is so essential for the attack on inflation to succeed and why, I am convinced, the great majority of people want it to succeed. If we can achieve a greater measure of price stability and a lower rate of inflation we shall have laid the basis of confidence from which the level of investment can grow.

That is why I am confident that the proposals in the Green Paper will commend themselves to the House. The price proposals are designed to strengthen the working of a competitive economy, and the pay proposals are designed to commend themselves to the great moderate majority, because it is that moderate majority who have the most to gain. They have more to gain than anybody else from the success of these proposals. It is upon that basis that I commend them to the House.

4.17 p.m.

Mr. Anthony Wedgwood Berm:

I beg to move to leave out from "House" to the end of the Question and to add instead thereof: has no confidence in the policies described in the consultative document on the Price and Pay Code (Command Paper No. 5247) and believes that the problems of inflation now require the adoption of socialist policies demo-critically controlled by Parliament along the lines indicated in the Joint Statement issued by the Labour Party and the Trades Union Congress on 28th February. I begin by congratulating the right hon. and learned Gentleman on the good-natured and good-humoured way in which he presented the Green Paper. The debates on the Counter-Inflation Bill, both in the House and in Committee, were of a high order, and today's debate is a continuation of that process.

The nub of the Minister's argument, and he came to it at the end of his speech, is that the gravity of the crisis confronting the country is such that the nation as a whole should rally round the Government's policy as being the only policy capable of solving the problems. No one on this side of the House will dissent from what the right hon. and learned Gentleman said about the gravity of the crisis. The rate of inflation is very rapid indeed, even during the freeze, and certainly in respect of fresh food prices. The balance of payments position is worsening, and there is widespread industrial unrest which can no longer be dismissed as being the view of a minority of so-called militants.

There is low investment. Despite two and a half years of rule by a Government who put investment high upon their election objectives, there was a drop of 10 per cent. in real terms between 1971 and 1972. There is an international monetary crisis, about which we shall no doubt hear more when the Chancellor presents his Budget tomorrow. There is a collapse of confidence that is widespread throughout the country. We therefore do not dissent from the Minister's view that there is a serious crisis, but we do not for one moment accept that there is only one answer to it or that the Government have provided that answer.

The Opposition case in this debate can be briefly stated. It is that, less than three years after coming to power on a programme of unrestrained competition within a market economy, the Government have completely abandoned that policy, they have plumped for a managed economy on corporate lines, they have undermined first industrial and then parliamentary democratic control over major economic policies, and they have brought about a major confrontation with large sections of the community, with important implications for the future. The Opposition believe that the time has come to seek a new national partnership on the basis of Socialist policies democratically controlled by Parliament that meet the needs, and therefore command the support, of the nation.

Today's debate is in a sense much more important to this country's future than tomorrow's Budget speech. The reason is that the Chancellor has the power to impose his Budget unilaterally upon the nation, whereas the code which we are discussing will not work without the support of the whole nation.

This code, if it comes into effect under this legislation, will mark the end of free enterprise as we know it and will usher in an era, not of Socialism—I entirely acquit the Government of any intent in that direction—but at least of State capitalism or something like it which is totally contrary to the principles upon which they presented themselves to the electorate in 1970.

This code is, of course, only one of a number of measures that the Government have introduced in the last two-and-a-half years. The Government Front Bench are still unaware, or appear to be unaware, of the magnitude of the changes that they have carried through in the system of the economy in which they profess to believe. I want to remind the House, briefly, of the powers that this Government have taken in the last two-and-a-half years, so as to set a background against which we can debate the code.

First, in the Industrial Relations Act the Government defined for the first time a wholly new concept in law—an "unfair industrial practice". I believe that I am right in saying that such a concept was utterly foreign to our law before. If there is to be an unfair industrial practice in respect of disputes, there are many people who are arguing that there are other things which are unfair industrial practices, including, for example, asset stripping, insider dealing or land speculation, and the Government have at any rate provided a future Labour Government with a precedent for dealing with such practices under an umbrella phrase like "unfair industrial practice".

Next, the Government are seeking to take power to control a privately-owned company in the interest of its customers. Clause 20 of the Insurance Companies Bill, now before Parliament, gives the Secretary of State the power to give any directions he wishes to an insurance company in order to protect its policy holders. Under the same Bill, the Government have also asked Parliament to give them the power to ask any insurance company to produce the books, all the books, and people to explain them to any duly authorised officer appointed by the Secretary of State. Under Clause 2 of that Bill they have asked for the power to approve the names of directors of insurance companies and they are seeking to give the Secretary of State the power to remove directors whom he regards as unfit.

Take another case. They have also taken the power—in this case under the Housing Finance Act, but it makes no odds—to put in a commissioner if a Minister's directive is not obeyed. If one can have a housing commissioner, there is no reason why one should not have a "production commissioner" as part of the same tradition: sending in an appointed officer if a company does not obey a ministerial directive.

Under paragraph 6 of the White Paper "A Programme for Controlling Inflation", they have defined in clear language "the commanding heights of the economy" as Category 1 firms. Indeed, the Minister for Trade and Consumer Affairs gave us a definition today of how many such firms he regarded as constituting the commanding heights of the economy. I have some figures, which he broadly confirmed, to show that the top 100 firms in this country in 1950 accounted for 20 per cent. of our gross national output. In 1972, the top 100 firms controlled 50 per cent. of our output, and the forecast of the NIESR is that, in 1980, the top 100 firms will produce 66 per cent. of our national output.

The Government are seeking powers to force these companies to submit detailed reports to them before any major decision can be taken on prices, investment or anything else. Under paragraph 28 of this code, as the Minister confirmed today, they have taken the power to supervise the internal operations of multinational companies. I asked the Secretary of State for Trade and Industry about this, and the Minister later confirmed it.

Ford, General Motors, Chrysler, IBM and the oil companies can, under this provision, be required to reveal sufficient information for the Government to judge whether or not they are engaged in arm's-length trading.

Under Clause 12 of the Counter-Inflation Bill 1973 they are taking power to require periodical returns of information. In Committee I asked the Secretary of State for Employment whether that information could be used for criminal prosecutions, and received from him a provisional reply which he later found it necessary to modify in a letter. In that letter, after reminding me of what I had said in Committee, the right hon. Gentleman wrote: This brings me to the point about offences. If an organisation of workers commits an offence under Clause 14(2) of the Bill the fact will normally be obvious since the offence consists in bringing pressure on an employer in the ways described in Clause 14(3). Thus, I do not think that it would normally be necessary to use the powers in Clause 12 to obtain information about such an offence, although I cannot altogether exclude the possibility. By contrast, the fact that a business enterprise which was the subject of an order or notice applying the Code was not complying with it might never become evident at all if they were not required to provide relevant information under Clause 12. It is mainly for this reason,"— for the purpose of potential prosecution— incidentally, that this power needs to operate in respect of any period when Part II powers are in operation. Formidable powers indeed, and their motive is to police Government policy.

The Government also wish to take power under paragraph 38 of the code to control profit margins and, under paragraph 49, to monitor investment plans. They want to take power to amend existing legislation or future legislation by order under Clause 8 of the Counter-Inflation Bill, following a similar provision in the Counter-Inflation (Temporary Provisions) Act, under which steel prices in this country are today held below the level required by our membership of the Common Market.

To take the House back to earlier legislation, now perhaps half-forgotten, the Government also have the power, of course, if they choose, to provide money for investment themselves without allowing prices to rise. It is quite clear that under Section 8 of the Industry Act 1972 the Secretary of State may, with the consent of the Treasury, provide financial assistance where, in his opinion—

  1. (a) the financial assistance is likely to benefit the economy of the United Kingdom, or of any part or area of the United Kingdom, and
  2. (b) it is in the national interest that the financial assistance should be provided on the scale, and in the form and manner, proposed, and
  3. (c) the financial assistance cannot, or cannot appropriately, be so provided otherwise than by the Secretary of State".
Of course, the powers that the Secretary of State has are powers of acquisition of loan or share capital, acquisition of any undertaking, or any assets and so on.

Finally, under the famous Rolls-Royce (Purchase) Act, the Government have already set a precedent for a one-clause Bill to take over a firm which they believe they should take over.

I have rehearsed the achievements of two and a half years of Conservative Government, not to imply that the Government have become Socialist—for they have not—but to show that they have made a very good job of burying the capitalism to which they have hitherto been so deeply committed. Given this, given that they are now not only picking up lame ducks but, as some would say in the CBI, are going for the goose that lays the golden eggs, there is not just one option open to Parliament and the nation as to how to proceed. There are at least three options.

The first is that one could go back to the market economy and forget the enforcement of these powers. But that does not find favour with the Cabinet, which has tried it and believes that it has failed. The second is to evolve the present policy further along the road to a corporate State, managed by agencies and boards and enforced by the courts, all of them beyond the control of Parliament. But this, almost by definition, because the democratic element is abstracted, involves a decision to manage the country specifically without the consent either of industry or of organised bodies of workers. The third course open to the country is the one advocated in the amendment—that we should go on to greater public ownership and greater equality and democracy, with Socialist measures, since there is no longer any argument about interventionism between the two sides of the House.

If the argument is not one of interventionism versus the market economy, and if we are to have intervention anyway, let us ask the real question: in whose interest is the economy to be managed? Is it worth preserving a system which has been mummified, like Tutankhamun himself, by the Government in their major alteration to the market system, to which they were committed?

Of course, if we are to come to this question, all sorts of new areas of policy and possibilities open up. The argument about inflation and about prices and incomes is no longer a peripheral argument in our society. It is now the central question.

All previous prices and incomes policies have concentrated on the role of wages as the principal cause of inflation. But in the present prices and incomes policy it is manifestly not true that wages are the dominant cause of inflation. It is manifestly true that the Government are taking sterner measures, or so they claim, against prices than have ever been contemplated before.

All previous prices and incomes policies have commanded the support of the centre in British politics, however unpopular they may have been. The relatively few critics, from Right or Left, could safely be dismissed as militants or extremists who did not accept the policy. But that is manifestly not true now that the civil servants, the health service workers, the nurses, the TUC, the Labour Party and large sections of the Conservative Party do not accept that this is a good policy.

It could be argued that all prices and incomes policies in the past were designed in some way to leave the mixed economy to work as normally as possible. But this code is now so severe that the working of that system is itself in effect suspended, like the money markets this week until the international monetary crisis is resolved.

All previous prices and incomes policies were seen as being secondary to or supporting other policies which had already been prescribed by the Government. This time the prices and incomes policy is presented as central, and is seen as being central, as being an argument about the whole nature of our society—who gets what and why. The introduction of such a policy is a complete break with all past policies.

I do not mock the Conservative Party for its change of policy since 1970, although it would be easy to do so. I do not mock it because I believe that what is really important about the Government's change of policy is that the Government genuinely and sincerely believed in free enterprise in 1970 but have been reluctantly driven by experience to abandon their own policy and to introduce policies which even now in their hearts they do not like but know they cannot escape. I want to analyse this experience so that the House can understand how it came about that men who would rather not have done it were driven to the course of action which they have taken.

Photo of Mr Tom King Mr Tom King , Bridgwater

The right hon. Gentleman mentioned that his comments were going to be brief. Before he begins his analysis, I think what many hon. Members would like to hear is what policies the Opposition would recommend as preferable to those of the Government, which are being put forward in the code. The right hon. Gentleman has directed a lot of hilarity and ridicule at the Government, particularly at their prices policy. The Government's policies have been described as pretty tough by the Opposition. Will the right hon. Gentleman describe at some length the Opposition's alternative?

Photo of Mr Tony Benn Mr Tony Benn , Bristol South East

I said at the beginning that the arguments could be briefly summarised. I am now trying to develop an argument on the lines on which we discussed these issues in the Standing Committee on the Counter-Inflation Bill. I am sure that the hon. Gentleman will acquit me of trying to make a mockery of the efforts of the Government. I am trying to assess the gravity and significance of the change of policy and to give reasons for it. I shall come to that part of the amendment which deals with the Opposition's policy.

The Government tried to use unemployment to restrain wages, and failed; they cut public expenditure, especially for regional policy, but had to restore it; disengagement was attempted and had to be reversed; tax cuts did not result in the expected investment; free competition did not deal with inflation; the terms of our entry into the European Economic Community have already been proved to be disadvantageous in respect of food prices, steel prices, and the snake in the tunnel that we entered and left, and the refusal, so far, to join in a collective Community float; the legislation against the trade unions is a dead letter—there has been no action by the National Industrial Relations Court since the famous episode at Pentonville last summer.

The Minister for Trade and Consumer Affairs, who played a large part in introducing statutory powers against the trade unions in the Industrial Relations Act, has two powers that he could now use. Why does he not use the ballot? He does not do so because he knows that if there were a ballot the industrial action being taken would get overwhelming support. He knows that if he used the ballot he would lose the argument that a few militants are causing the trouble. Secondly, why does not the right hon. and learned Gentleman use the cooling-off period? He does not use it because it is not possible for the Secretary of State for Employment to satisfy the NIRC that there is a hope of conciliation. There is no hope of conciliation because the Government have shut off conciliation during phase 2.

What has happened is that the argument for inequality in our society, which we have been asked to accept for many years because it was supposed to provide the fuel of profits which gave us investment, is no longer valid. That is the change which has occurred, and a more fundamental change one could hardly imagine.

I come now to the Labour Party-TUC compact. It is, of course, based on the belief that the alternative open to the Government must be based upon a desire to find an acceptable policy. It has taken a year for us to evolve the statement which we published on 28th February. It reflects the deepest needs of the people represented in their work by the trade union movement and politically by the Labour Party. It is open, of course, to the Government to study and implement the programme themselves.

What does our statement say? First, it calls for direct action on prices and implies control of all food prices and subsidies. I have cited in the House the fact that the rate of increase in fresh food prices since the freeze is now two and a half times as great as it was a year ago, when there was no freeze. I take comparable 17-week periods of this year and last year. The prices of all foods rose by 3·1 per cent. in that period in 1971–72 and by 7·8 per cent. in 1972–73; fresh foods fell by 2·3 per cent. in that period last year, but increased by 15·3 per cent. this year; fresh meat was down by 3·3 per cent. last year, but rose by 9·1 per cent. this year; vegetables were up 12 per cent. last year and have risen 13 per cent. this year; fish rose by 2·3 per cent. last year and 18·6 per cent. this year; fruit rose by 1·9 per cent. last year and has risen 60·6 per cent. this year—all in the period of the freeze.

If it is nothing more than lack of imagination that the Government suffer from, they should surely recognise by now that they cannot present such a policy to working-class people as fair while food prices continue to rise at the present rate.

The next point in the Labour Party-TUC statement concerns permanent price control over manufacturing and retailing. I do not mock the severity of the Government's price control in this sector—indeed, in that respect, they have gone further than has ever been done before, even during the war. But those price controls must be permanent.

There must be repeal of the Housing Finance Act, for the indignity of asking a man suffering from a statutory wage control to accept a second-stage rent increase under Government legislation is utterly unacceptable. We call in our statement for an accelerated house building programme, for an entirely new approach to transport and fares, and for a redistribution of income and wealth.

In that last connection, I draw attention to one of the most disgraceful frauds in the Government's presentation of their case. I am indebted to the research department of Ruskin College for relating the effect of the Government's tax remissions and phase 2, putting them in a single chart. I can now give the House the consequences of the Chancellor's budgetary policy as reflected in his present tax intentions for 1973.

I take the figures of tax levels for 1971–72, when we left office, and compare them with the projected percentage tax figures for 1973–74. These are the figures for a married couple, with all earned income: at £1,500 a year, a tax cut of £72 a year; at £3,000, tax cuts of £102; at £10,000, tax cuts of £660; at £20,000, tax cuts of £2,480; and at £50,000—there are a few earning that—tax cuts of £7,400. Those figures represent a combination of the three years of tax changes carried through by the Chancellor.

Adding the projected tax changes for next year to the phase 2 increases, which the right hon. and learned Gentleman had the effrontery to describe as fair, we come across the most astonishing figures of all. These figures are the total equivalent of pre-tax pay increases, assuming that both the phase 2 formula and the Budget benefits come into effect: at £2,000 a year, it is £2·60½ a week, that is, with a little bit of phase 2 and a minor tax reduction; at £5,000 a year, including phase 2 and tax reliefs, it is £5·77 a week; at £10,000 a year, through a combination of the Chancellor and his right hon. Friend, it is an increase of £14·86 a week; at £15,000 a year—that is, the level at which the new chairman of the Pay Board will come in—there is not only his increase but £22·58 per week back from the tax remissions plus phase 2 increases; and at £30,000 a year, the increase is £43·49 per week.

That is a manifestly unfair policy, a fraud concealed from public understanding by statistical complexity alone, which, once it is revealed, will simply not be acceptable.

Photo of Mr Peter Rees Mr Peter Rees , Dover

I am sure that the right hon. Gentleman does not wish to be unfair. Does he concede that at the highest levels the rate of tax will go from 88·75 per cent. to 90 per cent., and will he concede also that, as a result of the unification of income tax and surtax, a lot of people will be paying tax a good deal earlier than they did previously?

Photo of Mr Tony Benn Mr Tony Benn , Bristol South East

I shall give the hon. and learned Gentleman one other figure. A married couple with £10,000 a year, all unearned income, will be receiving the equivalent of £135 a week pre-tax increase from the Budget unless there is a change tomorrow. That is wholly unacceptable. It is no good saying that such people will be paying a week or two earlier or that there will be some other minor change. It is wholly unacceptable, unfair and unjust, and it explains in part why this policy will not succeed.

Photo of Sir John Hall Sir John Hall , Wycombe

Would it not help to put these matters in perspective if the right hon. Gentleman mentioned the total tax to be borne by each of the individuals to whom he refers?

Photo of Mr Tony Benn Mr Tony Benn , Bristol South East

We are told that the Government are the friends of the lower-paid. In fact, they are the friends of the rich, and especially the richest, and what they say to the public about their concern for the lower-paid is belied by every Budget introduced by their Chancellor. That is the point. We are saying no more than that.

To take the Labour Party-TUC statement further, we are calling for a phasing out of social charges and for a basic pension of £10, with £16 for a married couple. We are calling for a commitment to growth—with important lessons for the Chancellor tomorrow—and, of course, implied opposition to the EEC collective float. We are calling for the stimulation of investment by the use of public enterprise and public supervision of the investment policy of large private corporations.

We are calling for the control of capital movements overseas, for a joint programme of regional development, for a new approach to the idea of some attempt to control our economy democratically within industry and within Parliament. We are calling for a common approach to the multi-national company. We are calling also for the repeal of the Industrial Relations Act. Finally, in putting these 14 points to the House, I must express a word of thanks to the Government, for they have provided almost all the legislative machinery which we should need to implement the joint Labour-TUC statement.

The argument put by the Government—no doubt, we shall hear it again today—is that, as we have a statutory price policy, we must have a statutory wage policy, too. This is manifest nonsense. [Interruption.] It is manifest nonsense because the Government have power to use the statutes now, by a ballot or through a cooling-off period, to end the present industrial unrest, but they cannot use that power. There is no mystical symmetry in the Government's approach to relations between major companies and the trade union movement.

Statutory wage control with rising prices is not acceptable and will not work. The Government themselves say that they wish to move to voluntary agreement. We believe that a voluntary agreement is not possible without strict price control and subsidies, because it would involve making the unions an agent of the Government, which they will not be and would not be, and, moreover, because the Government themselves are seeking the cooperation of the trade union movement and must, therefore, recognise that even from their point of view, whether we accept it as likely or not, it is not possible to get the co-operation of the trade union movement in statutory wage control.

Photo of Mr Kenneth Lewis Mr Kenneth Lewis , Rutland and Stamford

Will not the right hon. Gentleman agree that, if the Government had not brought in wage control or were not running into a wages and pay board control system, it would have been certain that the Ford workers would have demanded the sort of increases for which they were asking, whereas, now that there is this Government control, together, of course, with opposition within the company itself, they have accepted and there has been a vote against a strike?

Photo of Mr Tony Benn Mr Tony Benn , Bristol South East

I do not accept that for a moment. I endorse the view expressed by Aneurin Bevan in his last speech at the Labour Party conference, that what had staggered him over the years was the modesty of the claims made by British working people against a society which treated them so unjustly. I know of no worker in industry who is demanding an increase comparable to the increase the chairman of the Pay Board will get in his first year in office through the benefit of tax changes alone.

It is not sensible, practical or right to suppose that the only way in which one can deal with these problems is by statutory control of wages.

We are, perhaps, too close to the situation to appreciate the full significance of the changes which the Government have been carrying through in their two and a half years of office. They are now trying to create an artificial system which is unfair and cannot work, and they are being driven progressively to dismantle, first in industrial democracy and then in parliamentary democracy, the safeguards against that occurring. It may take some time for people to realise what is happening. On the other hand, the policy which we are putting before the House today, the Labour-TUC policy, is a policy built upon confidence between the TUC and ourselves. It is a policy which offers something which the Government, with all their parliamentary majority, cannot offer to the British people; namely, an end to confrontation as a way of solving these problems.

We have no confidence in the Government or their policies, and on this part of our amendment we suspect that there are hon. Members opposite who share our view. We offer an alternative approach, all of it capable of implementation by using this Government's legislation, including a great extension of public ownership. We offer an end to confrontation and a recovery of co-operation, without which no policy and no Government can hope to succeed.

4.51 p.m.

Photo of Sir John Hall Sir John Hall , Wycombe

I confess that while listening to the speech of the right hon. Member for Bristol, South-East (Mr. Benn) I thought that I had come to the wrong debate. First, I thought that I was listening to a continuation of the debate on the Counter-Inflation (Temporary Provisions) Bill. Then I thought that we were debating Labour Party policy for the next General Election.

It was my belief that the debate was supposed to be about the consultative document—the Price and Pay Code. I thought that the purpose of the debate was to examine the code, to ask questions about some of its provisions and to make some suggestions as to how it could be improved by removing the restrictions or in some cases increasing them. Instead, we have had a general debate about the philosophies of the Conservative Party and the Labour Party.

It has been suggested that Conservative hon. Members should accept what is described as the joint statement by the Labour Party and the Trades Union Con- gress. It seems that that should be the other way round; it should be a joint statement issued by the Trades Union Congress and the Labour Party. There is no doubt which has the greater influence in the preparation of a statement of this kind.

It is interesting to look at the words in the amendment moved by the right hon. Member for Bristol, South-East, namely: …socialist policies democratically controlled by Parliament… My recollection of some of the legislation introduced by the last Labour Government is that when it concerned in any way the trade union movement it ceased to be democratically controlled by Parliament and became controlled by the trade unions outside Parliament.

It is not my purpose to take much time in dealing with the right hon. Gentleman's speech. However, there was a time when I thought he sounded like a Conservative spokesman speaking from the Opposition benches. I agreed with some of the things that he said about the objectives for which the Government have been striving over the last year or two. If we are to continue in the way in which we are now going we shall end up a corporate State. That is not an end which I desire. I hope that we shall find it possible to revert to what I believe to be true Conservative philosophy and not the policy which we are now following.

I supported the Counter-Inflation (Temporary Provisions) Bill in the Lobbies extremely reluctantly. I have never believed that statutory policies of that kind will work for long. I supported the Bill because I could see no alternative except to introduce a measure of this kind for a temporary period. I stress the word "temporary". No provision of this nature, however stringently worded, can work for long. The only way in which we can hope to make it work is by introducing further measures to stop up loopholes and to become more restrictive.

That is not the way in which I want to see a Conservative Government proceed. I supported the measure because I regarded it as temporary. If we are to introduce counter-inflationary measures they must be made to be effective in the short term. The code which we have before us and which we are supposed to be discussing is certainly very stringent in its provisions. I think that the right hon. Gentleman said that the restrictions which apply to prices are probably more rigid than those which apply to pay. I agree with that.

From my experience—and I may be wrong—I cannot think of any country which operates a closed economy and has more restrictive provisions than those which are contained in the consultative document on prices as a whole. Several European countries have exercised for a long time continuing control over prices. Even so, I cannot think of any country which goes quite as far as it is proposed that we should go in the first part of the consultative document.

I have some questions to ask about specific paragraphs. I shall use this opportunity to consult the Government about the pay code. First, I have one or two comments about the effect on the companies which tried to keep to the voluntary agreement which the CBI organised and to restrict their prices increases to 5 per cent. Those firms must be kicking themselves hard. Whatever may be the utterances of my right hon. and learned Friend the Minister for Trade and Consumer Affairs, there is no doubt that they have suffered and will suffer compared with the firms which took no notice of the voluntary agreement.

It is a mistake to penalise people who respond to a voluntary agreement. If they are penalised they will not respond the next time. That applies to industry, management or trade unions. Some credit and some advantage must be given to those who respond to a call for a voluntary price restriction.

Paragraph 19 refers to productivity deduction. It allows firms to claim as justification for a price increase only 50 per cent. of any increased labour costs. I find the bland assumption that firms can absorb a 50 per cent. increase in labour costs by increased productivity a little naïve. Many firms will find it impossible to do that. If we are to have wage increases of 8 per cent. or 8 per cent. plus for the next 12 months, 4 per cent. will have to be absorbed by increased productivity in one form or another. We can all think of companies where this will not be possible. It will mean a reduction in the general margins that that firm previously enjoyed.

Paragraph 21(ii), referring to interest charges, says: they are interest charges of a kind normally charged against the profit and loss account of the enterprise concerned… That is an increase in interest charges which cannot be accepted. Surely they should be interest charges of a kind not normally charged against a profit and loss account.

Photo of Sir John Hall Sir John Hall , Wycombe

That is a great relief to me. When I looked at that paragraph the first time I was very worried. I am delighted to receive that assurance from my right hon. Friend.

Paragraph 36 refers to price reductions, and says that a fall in raw material prices should be fully reflected in price reductions in general. At what stage are such price reductions expected? If there is a fall in raw material prices most of them will probably be known to the general public because raw material prices are published and become known before they can be reflected in reduced prices. In many industries it takes a long time for raw material costs to work through to the production line. I should like to know how this provision will be made to apply in practice?

When these decreases in raw material prices have worked through to the production line, the costs may have been overtaken by increases in other directions which more than offset the fall in the raw material price. How will that be taken into account when we look to a firm to reduce its prices because raw material costs have fallen?

Paragraph 40 was touched on briefly by my right hon. and learned Friend. It refers to the situation where the reference level of the profit margin has been exceeded. As I understand it, firms—certainly those in categories I and II—will be expected to make quarterly returns. If it can be seen that the profit in any quarter exceeds the firm's reference figure at that time the firm will be expected to reduce prices.

Presumably, if a firm can show that its profits tend to vary from quarter to quarter—that there may be higher production or higher turnover in one quarter and lower production and lower turnover in another—perhaps because trade is seasonal, the firm will be able to use that as a reason for not reducing prices at that time. In that case, there would have to be a longer period before the firm could be told to reduce its prices. What is that longer period to be? Is it sensible for these changes to be possible at periods as short as a quarter? Periods of half a year might be all right, but quarterly checks may be too difficult.

The restrictions on price increases and net profit margins are likely to have some rather interesting effects. There may be an increase in investment. If a company saw that its profit margin was likely to be higher than the average of the next two years, or whatever the formula is, it would be encouraged to borrow money to invest in plant and machinery, and more capital investment, so as to offset interest charges and increased depreciation against profits and thus bring profits down to the pre-freeze and normal net profit margin. That could be a good thing in the long-term view.

On the other hand, it could encourage a good deal of wasteful expenditure. It could encourage the kind of expenditure that we had at the time of profit limitations. It could encourage excessive expenditure on advertising which might not be particularly desirable, commercially or socially. It could encourage the loosening of control of business expenses—a feature of the time when we had excess profits taxation. It could encourage a good deal of wasteful expenditure in other respects of which hon. Members can think without too much difficulty. What sort of control are we likely to have to prevent that kind of thing?

My own philosophy is that if there is a real improvement in profits, that is, if net profit margins increase because of an increase in turnover or efficiency, or a combination of both, the increase should be split three ways—to the consumer, through a reduction of prices; to the workers, through an increase in wages; and to the shareholders, who are entitled to some share in the increased productivity of the company. That seems a sensible and logical way in which to deal with increased profits. Under this system, there would be a decrease in prices, which would benefit the consumer, which is the Government's intention, or the company would use the excess in other ways so as to reduce profit margins to an acceptable level.

How long will it take to deal with applications for a price increase? There are special provisions for applications from food processing firms. That is essential, because food processing firms may have to deal with changes in the prices of foodstuffs daily and if their applications are not dealt with quickly the food processing firms will find themselves in difficult circumstances.

But other concerns, too, find themselves at the mercy of prices—especially the prices of imported raw materials—and they may find themselves in difficulties unless their price increase applications are dealt with speedily. I cannot see them being dealt with speedily, because the staff to be made available to the agencies will not be large. In the first year or so—I ought not to say "In the first year or so"; I ought to say, "In the first few months", because I hope that the system will not last for a year or so—the staff will tend to be overwhelmed with applications.

The pay code rightly concentrates on the benefits for the lower-paid workers. An interjection earlier in the debate suggested that it was thought by some that lower-paid workers would be restricted to the £1 plus 4 per cent. increase, but it is nothing of the kind. The figure of 4 per cent. applies to the total pay roll and it is up to the unions responsible for negotiations to decide how much of an available increase in a firm or industry should go to the lower-paid workers and how much to the more highly paid.

After having heard so often from the Labour Party and the trade unions that lower-paid workers should be better treated and given larger increases it will be interesting to see whether trade unions are prepared to allow that in practice—whether they will be prepared to permit a greater proportion of the 4 per cent. of the total salary roll to go to the lower paid and a smaller proportion to go to the higher paid. I have a feeling that they will go on demanding a straight increase across the board, as they have tended to do throughout.

My final observation relates to dividends. No doubt partly because of my own stupidity, I do not fully understand paragraph 131. It would seem possible for a company to declare the same percentage dividend on its capital and yet, having taken into account the adjustment of the new form of dealing with corporation tax, to make a net payment to shareholders greater than the net payment for the previous year. I should like to know whether I am right in that assumption. If I am, I am not sure whether that is what the Government intend. To make certain that I am not misunderstood, I shall say it again. If a company pays the same percentage dividend this year, after the freeze, as it did before the freeze, because of the adjustment of the way in which corporation tax is treated, it may end up paying to shareholders a larger net dividend. I wish to know whether I am correct in that assumption.

I hope that the Government will take the opportunity to deal seriously with those questions and others, so that this becomes a discussion about the nature of the document rather than a general, wide-ranging debate about the philosophy behind it and the whole subject of a pay pause. I hope that my hon. Friend will be able to answer those and the many other questions that will be put in the course of the debate.

5.7 p.m.

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

We are debating a long, detailed and important document. We have already been over some of the arguments in Committee and on Report. It would have been better if this consultative document—for it is no more than that—had been discussed by a Select Committee. It is certainly long enough for that, and I wish that it had had that treatment at this consultative stage. When the final proposals come before us later, it would be better to debate them as we normally discuss legislation, in Standing Committee or in Committee of the whole House.

We cannot do that because of the Government's hurry to get their legislation through. I must make it clear that the Government's hurry is of their own making. I regard the Bill and the code as panic measures, and they are panic measures because of the lack of forethought.

In opposition the Conservatives opposed a prices and incomes policy. I do not wish to embarrass them by quoting the Conservative manifesto; I merely ask them to read it again. Perhaps in the nature of things all parties make ludicrous promises when in opposition and back them in their election manifestos and then change them when in office. In opposition the Conservatives opposed the prices and incomes policy in principle, not because of any rational basis for such opposition but simply to defeat the Labour Government. Having opposed it in opposition and having committed themselves against it during the election, they have frittered away two and a half years of precious time trying to redeem promises that no reasonable being would ever have made.

Whatever the inadequacies of the policy and of the document—and those inadequacies are substantial, as most Conservatives appreciate in their hearts—there is no reason why anyone should vote for or against a consultative document. I regard such a vote on a consultative document as cheap gesture politics. I have no intention of doing so. I shall not vote for or against the document at this stage, and I shall recommend my hon. and right hon. Friends accordingly.

All I want to concern myself with is the question of food prices. As the Minister and all hon. Members know, the Achilles heel of any prices and incomes policy is inevitably what happens to food. The country has been faced with a desperate choice. The Government have set out their view in paragraph 12 of the Green Paper which states baldly that: The prices paid to United Kingdom producers or producers' organisations or to overseas suppliers for fresh foods and similar products, which are subject to fluctuations on world and United Kingdom markets because of seasonal factors or international changes in the relationship between supply and demand, are not controlled. The right hon. Member for Bristol, South-East (Mr. Benn) has amplified the extremely interesting Labour Party-TUC document which was published last week. Paragraph 6 deals with direct statutory action on prices. If the choice for the country were between those two well might the British people despair. The Minister for Trade and Consumer Affairs said that the control on food prices in this document was "as strict and as tight as it can be made." He may be right. I do not necessarily dissent from that view.

It may be impossible to control food prices for the reasons which he gave, which Ministers have given in the past, and which we all know. I have considered in great detail and sympathetically the proposals of the Swedish Government. Here again it is baldly stated in the decree on 21st December 1972: The King in Council…decided: He who voluntarily sells goods listed in the addendum to this decree must not without permission raise the price he was charging on December 21 1972 at 9 a.m.…this Decree comes into force on January 1 1973 and will be valid till the end of June 1973. That appears to be a total freeze on prices backed by the Swedish Government. But when we get to the small print—and incidentally the document in toto is certainly as long as our Green Paper—we can see that it is not really a total freeze because the freeze is selective and exceptions are allowed.

I would not for one moment suggest that in its food pricing policies Sweden can be compared with this country. The total value of all food imports is a vastly greater proportion of our gross national product than is the case in Sweden. It would be foolish to compare them directly. In any case it is far too early to see how effective is the Swedish policy. The policy involves subsidies. The Swedish Government will get those subsidies by increasing the fuel tax.

Increased fuel taxes are themselves highly inflationary. I have no doubt that the Government have considered these points and for these and many other reasons have decided not to follow the Swedish example.

Photo of Sir John Hall Sir John Hall , Wycombe

Is it not rather a problem to introduce food subsidies into this country because of EEC restrictions?

Photo of Mr John Pardoe Mr John Pardoe , North Cornwall

It is possible to introduce food subsidies through a negative value added tax. My reading of the regulations is that that would be allowed. If zero rating is allowed it should be possible to have a minus rate.

The Government now seem, to reasonable people, to be saying that nothing can be done to control food prices. That is an impossible position from which to sell a prices and incomes policy to the country, because no such policy has any chance of success unless it takes account of food.

It is for that reason that the Opposition have taken account of food to a considerable extent in their amendment and in their document published jointly with the TUC last week. The alternative put forward by the Opposition is for direct statutory action on food. Food prices must be controlled; and the next Labour Government will create the machinery to make this possible providing subsidies where necessary to curb increases in the price of food. This could succeed, but if it is to succeed the Opposition, if they become the Government, will have to face problems just as painful as those now being faced by the Government in implementing their policy.

If a total freeze on prices is introduced, either wages would be controlled or all the companies would go broke. They simply could not afford to pay the increased wages because they would not get the additional revenue from increased prices. Theoretically, the unions would not be so stupid as to close down their places of employment. The trouble is that practical politics enter into this question. A large employer would not be allowed to go to the wall by any future Labour Government. That Government would save the firm with taxpayers' money. This is the whole fallacy of dependence on price control alone. Moreover, knowing the dependence of any future Labour Government on the unions, employees would know in advance that the Government would not allow their place of employment to close. While, theoretically, therefore, a total price freeze would freeze wages, in practice I believe that increased wages would be paid through a labour subsidy paid by the taxpayer.

I will not necessarily object to this if all of the taxes needed for the subsidy were to be paid by the rich. But no such luck. We would have to get those taxes from the very people whose higher wages we were subsidising. Subsidising food prices may sound attractive. I have been tempted to indulge in advocating it. I suggested, in answer to an intervention, the possibility of a negative VAT. But the history of food prices is not encouraging. The questions arise: where do we stop subsidising? On what products do we indulge in subsidies? How do we get rid of them when we want to?

Where do we stop?

The TUC-Labour Party document says refers to "Providing subsidies where necessary." That begs every question in sight. If subsidies are imposed to keep prices at the level they were at at the beginning of the policy it is an open-ended commitment. As the world price of a commodity increased we would have to present a bigger and bigger bill to the taxpayer. The hon. Member for Birmingham, All Saints (Mr. Brian Walden) faced this question in Committee on the Counter-Inflation Bill. He said: I am suggesting that the price that is paid when it is translated to the consumer is subsidised by the Government. If it is open-ended, that is not a phrase which breaks my heart."—[OFFICIAL REPORT, Standing Committee H, 5th February 1973; c. 82.] It might not break the hon. Member's heart but it would certainly break the heart of any future Labour Chancellor. It would also break the heart of the electorate, which would revolt against the level of taxes it was asked to pay to finance such a scheme.

So what do we do, faced with these alternatives, both of which I regard as totally unacceptable? The answer lies in insuring pay against a rise in food prices, not by means of a Government subsidy but by an automatic and regular wage increase. My proposal is that every three months the Government should announce a flat-rate cash increase on all wages. That flat rate is calculated by reference to what will compensate the average worker for the rise in the cost of food in the previous quarter.

There are various ways of calculating this. One way is to relate it to average industrial earnings, now £36 a week. In 1971 food amounted to 25·9 per cent. of average household expenditure. If we apply that—it is a fairly rough and ready calculation, the Government will no doubt be able to make a better one—to average industrial earnings we get a figure of £9 a week as expenditure on food. According to the retail price index, food prices rose by about 10·1 per cent. in 1972. If they rose in the first quarter of this policy by, say, 2½ per cent., all wages would be raised by 2½ per cent. of £9, which is the increase in the average expenditure on food, and that would be approximately 25p a week, or approximately £1 a year if the increase continues at that rate. If the increase in the price of food were more than 10 per cent. they would get more than £1 a year. This increase, built into the policy, could be introduced instead of the £1 of the "£1 plus 4 per cent." formula, or instead of part of the 4 per cent.

What I am asking the Government to do is not to hold up their hands and say, "We surrender; we cannot control food prices", or to accept the Opposition's policy for an open-ended subsidy, but simply to say to the people, "We will guarantee you against rising food prices". Once the Government have accepted the principle of the preservation of living standards by reference to the cost of food it will be much easier for them to gain the co-operation of the great majority of the people for their prices and incomes policy.

As one who wants a prices and incomes policy to work, and who does not believe that the Government's policy will work but who has no confidence in the policies adumbrated by the right hon. Member for Bristol, South-East on behalf of the Opposition and set out in the TUC-Labour Party document, I hope that the Government will give what I have said very careful consideration, if not for phase 2, then as an integral part of phase 3.

To confirm what I have said about voting intentions, I cannot bind my right hon. and hon. Friends, and would not dream of wishing to do so, but this is a consultative document. I see no point in striking attitudes on consultative documents. The purpose of a consultative document is to consult. This debate is about consultation. There will be consultation outside the House for some time to come. Voting is a futile gesture on this occasion, and I have no intention of taking part in it.

5.22 p.m.

Photo of Mr Alfred Hall-Davis Mr Alfred Hall-Davis , Morecambe and Lonsdale

I do not propose to take up in detail the interesting comments of the hon. Member for Cornwall, North (Mr. Pardoe) about offsetting increases in food prices. However, if we were to attempt to impose crude controls on food prices similar to the price controls outlined in the Labour Party-TUC document—and the hon. Gentleman agrees with me; I see him nodding his head in confirmation—we would in a country which imports a great deal of it, go short of food and the result would either be rationing or under-the-counter favouritism. There may be ways of offsetting increases in world food prices. Selective social benefits and tax allowances are one way. The way not to do it—and it would be fatal to do it in that way—is within the context of the Price and Pay Code.

The right hon. Member for Bristol, South-East (Mr. Benn) had a good deal to say on a wide front. Some of my hon. Friends were a little impatient because they felt that he addressed his remarks too widely. I do not quarrel with putting the Price and Pay Code into context. It is concerned with some fundamental questions—growth, living standards and social justice. The right hon. Gentleman made comparisons between the position of certain taxpayers in the next financial year and their position two years ago. I noticed that the comparison which he did not make was between the living standards of wage earners in the next tax year and the living standards of wage earners when his party left office.

Predictions are dangerous, but I am quite confident in my prediction that at the end of this Parliament the economic growth of this country, the living standards of wage earners and the position of pensioners and of people who have retired, will have improved relatively at a far greater rate than the miserable slow crawl achieved when the Labour Party was in office.

The test which we should apply to the Price and Pay Code is whether it is simple, fair and effective. In my view—and I make no bones about it—the degree of restriction which is being placed on the freedom of decision of individuals and organisations can be justified only if the code achieves its twin objectives of containing inflation and keeping open the way to substantial economic growth.

I believe that the code will be effective and, moreover, that only by checking inflation and keeping it in check for a period shall we be able to restore freedom of decision to those engaged in industry in settling pay and price matters. Like the majority of people I am sure that right hon. and hon. Members opposite wish to see the freedom to decide pay levels back in the hands of negotiators instead of Governments. There- fore, they should support and not obstruct the Government's proposals. If the Government's proposals do not work, those on the receiving end of price rises will demand more restrictions, not greater freedom for negotiators.

Therefore, no one has a greater interest in the success of the Government's policy than those, like myself, who believe that industry can settle its own conditions and prices but that it will not be in a position to do so unless we curb inflation, and unless the Government's policy succeeds.

Photo of Mr Robert Sheldon Mr Robert Sheldon , Ashton-under-Lyne

Is the hon. Gentleman saying that if the Government's policy is unsuccessful it will continue and that if it is successful the Government will drop it?

Photo of Mr Alfred Hall-Davis Mr Alfred Hall-Davis , Morecambe and Lonsdale

I am saying that in my view the policy will be successful. If it is not, the Labour Party will not ride back to office on a programme of happy union of intention with the trade union movement. Far from that, it will find that the electorate will turn to policies of greater restriction on the settlement of wages, whoever puts them forward.

I turn to the question of fairness. I believe that the Price and Pay Code is fundamentally fair, but that there is room for worthwhile improvement in one direction. I am sorry that my right hon. and learned Friend the Minister for Trade and Consumer Affairs appeared to take an adamant view on the pay section of the code. It is a consultative document and we wish to give him the benefit of our advice and views, for what that is worth.

One of the agreed objectives of the tripartite talks last autumn was to help the lower-paid. The code seeks to do that by the kind of formula used by a number of firms in recent years, namely, a flat cash increase plus a percentage of pay rates. That certainly would give the low-paid a proportionately bigger increase, but in cash terms the gap is still widening throughout the pay range. I should have preferred a flat-rate cash addition to be given across the board under phase 2.

However, there is another method of helping the low-paid, namely, to give a minimum increase in cash terms when the formula in use would throw up a lower figure. If, in phase 2, for all people with rates of pay less than, say, three-quarters the national average, employers could negotiate an increase equivalent to the formula figure at this level it would stop the pay gap widening for many of the lowest-paid and would give them a proportionately bigger increase than the code proposes. I am sure that the introduction of a figure—it might well be about £2 a week—by which pay for a normal working week could be increased for an individual or group without application of the £1 plus 4 per cent. formula would have the advantage of fairness and simplicity without materially affecting the cost of living.

There is another aspect of the code which will he widely welcomed in terms of fairness. My right hon. and learned Friend might have touched on it because of its importance. I refer to the freedom of employers to introduce or improve pension schemes outside the controls of phase 2. I am certain that this will give a timely boost to the improvement of pension arrangements for industrial workers. I think we shall see a bigger advance in the provision of pensions for industrial workers in the next 12 months than we have seen in the last five years or more. It is a difficult field in which to produce practicable proposals but I think we shall see a substantial advance in the next 12 months.

I should like to put to my right hon. Friend one question about pensions. As well as the cost of improving pension arrangements for those now in active employment being allowed under paragraph 39, I would hope that payments to pension funds to improve the pensions of those in retirement will be allowed at least up to the level which the Inland Revenue allows for corporation tax in any one year.

I turn to the question whether the code is simple. Here I am much less happy. I suspect that I shall not be popular with or supported to any great extent by hon. Members on either side of the House, but we come here to state our views based on our own experience, and that is how the House of Commons functions best.

In commerce and industry, keeping guidelines and controls simple is of real merit in itself if one is not to blunt the initiative and energy of managers. Management, all the time, every day, has to review the effects of the normal forces of supply and demand and the availability of resources for the conduct of business. If Governments have to impose additional controls which introduce a whole new set of ground rules it is important that those controls should be simple to understand and observe if they are not to take up an undue amount of senior management's time. There is also the danger—to which my hon. Friend the Member for Wycombe (Mr. John Hall) referred, when profits are being controlled—that an excess profits tax outlook may be induced, leading to a misuse of resources.

The Green Paper's prices and profits controls have a double objective—first, to stop prices being raised above their present levels unless unavoidable cost increases justify it, and, second, where companies' net profit margins as defined in paragraph 39 are currently at the highest level of the last five years, to cut them back to the average of the best two of the last five years.

I believe that the second intention is a triumph of laudable optimism over practical realism. I ask my right hon. Friend to tell me what contribution in terms of impact on the retail prices index this insistence on a two-year average for a "net profit margin" base will make. I am sure that the Government have done their own sums—I hope they have done their own sums—and calculated the impact before launching everyone else on a sea of calculations, which firms will have to embark upon if the two-year average base is maintained.

The two year from five average will create a great deal of work for accountants and financial controllers and a great deal of uncertainty for managers. It will be particularly hard for the smaller firms to understand and operate. It will, to put it no higher—or, perhaps, some hon. Members would think I should say, to put it no lower—create a temptation to undertake additional allowable expenditure which would otherwise not take place or would not be undertaken till a later date. It will be a constant temptation to some to relax efficiency.

If my right hon. Friend can tell me that calculations have been made which indicate that, as a result of paragraph 38 with its averaging provisions, the retail prices index will be one or more points lower in a year's time than if a single year's "net profit margin" were taken I will concede my point and accept his policy; but, if he cannot tell me what his calculations show, and if he cannot quantify the cost of living impact and show that it will be appreciable, then on grounds of simplicity, removal of uncertainty, and the efficient use of resources it would be infinitely better under the section "Prices and Profit Margins" for firms to be free to choose a single year made up of any two consecutive six-month profit periods before either 31st March 1973 or 30th September 1972.

I believe that the Green Paper policies will be an effective cure for the degree of inflation from which we have suffered in the last four years. Unfortunately, many modern cures have harmful side effects. The suggestion I have made regarding a single year base for profits would reduce the harmful side effects on efficiency and managerial initiative. The modest relaxations I have suggested on pay would make the medicine generally more palatable. Together they would make the code fairer and simpler.

In conclusion, I emphasise the merits of simplicity as a virtue in itself when controls are imposed on industry, and, in my view, neither proposal of mine would make the code any less effective in controlling prices in practical terms.

5.36 p.m.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

First, I want to make some brief comments on the speech of the Minister for Trade and Consumer Affairs. I thought his speech this afternoon was somewhat reminiscent of our rather tortuous debates on the Industrial Relations Bill. He has a genius for making even simple things appear exceedingly difficult. On this occasion he was easily able to make something that was very difficult appear to be very difficult indeed. By the time he sat down, I thought he had made the whole approach to this question more complicated that it was before he stood up.

The right hon. and learned Gentleman, as on many other occasions, and in many different circumstances, said that the policy of the Government is fair. The Government's policies are always fair, apparently. They are fair when they increase rents to council house tenants. There was a fair rents policy, and a "Fair Deal at Work" which led to the Industrial Relations Act, which was intended to work out—although it did not work out—in clobbering the trade unions and making it difficult for them to operate. It has not worked out because the Government have found it practical politics not to pursue this subject too far, especially after their experiences last year, not only with the dockers but with the railwaymen, and that famous ballot to which my right hon. Friend the Member for Bristol, South-East (Mr. Benn) referred.

My hon. Friend the Member for Penistone (Mr. John Mendelson) in an intervention in the right hon. and learned Gentleman's speech, raised a very important point when he said that on the pay side of this document there was to be no modification, and there were to be no exceptions in special cases; in other words, that we were to keep the code complete and inflexible. At the same time he said that, although the consultative machinery would remain available, it would apparently not be able to be used in any meaningful sense for consultation.

The right hon. and learned Gentleman said that the policy was all geared to winning the moderates, but he has transformed the moderates into militants. I use "militants" to mean workers who are legitimately taking industrial action. He has transformed into militants sections of workers who have never before been militants. The civil servants are now rip-roaring militants wanting to overthrow the capitalist system. That has never been the policy of Civil Service unions. I have never known civil servants to be concerned with taking industrial action, but there they were, outside No. 10, with their placards and bowler hats.

Then there are the hospital workers. If the policies of a Labour Government had led to hospitals being closed, the Press and the media would have been deeply concerned, but very little is being said about what is happening now, when the hospitals are being depleted of workers because of the Conservative Government's policy.

The speech of my right hon. Friend the Member for Bristol, South-East was one of the best speeches I have heard from the Opposition Front Bench for a considerable time. It dealt with the basic philosophy underlying the Green Paper. Hon. Gentlemen on the Government benches should be concerned with that philosophy. The Green Paper underlines that British private enterprise is at the cross-roads. It is in a period of deep crisis.

There are three options open to us. There is the option of old-fashioned, laissez-faire capitalism which, if totally uncontrolled, would lead to mass unemployment. The second option is the one that the Government are now steadily pursuing. I would not say, as my right hon. suggested, that it is State capitalism —there may be argument about precisely what State capitalism means—but it is certainly managed, controlled capitalism, leading last to the corporate State concept. That is where we are going. The third option is to take that concept to its logical conclusion with interventionist policies on the basis of a Socialist, planned economy and to introduce a Socialist economy.

The Conservative Party before 1970 rejected the concept of Government intervention. The Secretary of State for Employment will remember the book "The Middle Way" because his father wrote it. I read that book with great interest. The Selsdon man concept ignored "The Middle Way". Apparently at that stage Keynes had never existed for the Prime Minister. All the years of Keynesian ideas were thrown out of the window, and the Selsdon man concept—laissez-faire capitalism—was adopted.

Photo of Mr Lewis Carter-Jones Mr Lewis Carter-Jones , Eccles

Can my hon. Friend find any relationship at all between Keynes and the Selsdon man?

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

No serious relationship at all. The Government were forced by economic and political circumstances to abandon the policy of Selsdon man. No Government in the history of the country have reversed their policies and theories so quickly as have this Government. Within two-and-a-half years they have turned their ideas totally upside down.

Photo of Mr Alfred Hall-Davis Mr Alfred Hall-Davis , Morecambe and Lonsdale

Does the hon. Gentleman remember during the 1966 General Election the comments that were made about there being no need for a sharp increase in taxation, and what happened three or four months after?

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

I am not suggesting for one moment that previous Government have never changed their policies or have carried out their entire election pledges. What I said was that this Government have reversed their policies and theories more quickly than any other Government in history. Their philosophy has been totally turned on its head.

My right hon. Friend the Member for Bristol, South-East said that some people were referring to the Government's present policy as a series of Socialist proposals. That is a misreading of Socialism. It confuses bureaucratic State control with Socialist democracy. The two things are not the same. What they have in common is the concept of the corporate State.

I should like to quote the following passage from a book: Government of the corporate system would lay down the limits within which individuals and interests would operate. These limits are the welfare of the nation—not when all is said, a very unreasonable criterion. Within these limits, all activity is encouraged; individual enterprise and the making of profit are not only permitted but encouraged, so long as that enterprise enriches rather than damages the nation as a whole. I will quote a further passage: It is the machinery of central direction which the corporate State is designed to supply … it envisages, as its name implies, a nation organised as the human body. Every part fulfils its function as a member of the whole, performing its separate task, and yet by performing it, contributes to the welfare of the whole. The writer of those words referred to the corporate State as: essentially a system for the economic organisation. Hon. Gentlemen on the Government benches will see how closely those words are allied to the concepts laid down in the Green Paper and to speeches made by hon. and right hon. Gentlemen on the Treasury Bench. I shall tell the House who wrote those words. They were written by Sir Oswald Mosley in his book "My Life" and he was quoting from his other book "The Greater Britain", written in the period he became the leader of the British Union of Fascists.

This is the type of State into which the Conservative Party is moving us stage by stage. I am not suggesting that Conservative Members have been converted to the philosophy of Sir Oswald Mosley in a Fascist sense, and I would not suggest for a moment that they want to do away with our elected Parliament. But they wish to create a corporate State as an economic mechanism. Parliament will still be here, but we shall not have much of a function. Indeed, we are already losing that function in terms of the European Economic Community, but in respect of these proposals we shall lose that function twice over.

British parliamentary democracy is now being further undermined because of this policy and because of the many steps which have taken place since this Government have been in office. The truth of the situation is that if we oppose the concept of the corporate State, we should take it a stage further and introduce Socialist planning with public ownership and a national investment board. This is what we are suggesting should be done in the programme which we are placing before the country.

I wish to say a few words about the "nitty-gritties" of the code. We constantly hear from the Conservative benches the cry that the code is concerned with assisting the lower-paid. My heart bleeds when I hear the Conservatives say how deeply concerned they are with helping the poor lower-paid workers—except that when those workers actually come forward to ask for an increase in pay they are told "There are no exceptions, so you will not receive any increases in pay, except within the terms of phase 2".

What is the TUC's view about the lower-paid in the economic policy document which is being discussed elsewhere? This is what the TUC says about them: In this context there is a need to scrutinise the Government's statement that its policy will favour lower paid workers. The fact is that the application of £1 plus 4 per cent. could mean less than £2 a week for a worker earning £20, but £5 a week for someone earning nearly £5.000 a year. Again it is the lower-paid who are left behind.

It is all very well for the hon. Member for Wycombe (Mr. John Hall) to say that within the total context of an industry some workers can be lifted up a bit and others can come down a little. The Green Paper makes clear that it would be extremely difficult for trade union negotiators, even in the context of the Green Paper, to bring about any serious change in that direction. The TUC is right to point out what would happen and to show that once again the lower-paid worker will be left at the bottom of the heap and will not be assisted by this policy.

Labour Members are often accused of being tools of the trade union movement. It is said that the trade unions are the tail that wags the dog of the Labour Party. Let us get quite clear the relationship of the trade union movement to the British Labour Party. Anybody who knows the history of our movement appreciates that the trade union movement created the Labour Party. There would be no Labour Party unless the trade unions had come together with groups of Fabians and Socialists in other bodies to form the Labour Party. We are based on the trade unions but that does not make us an entirely trade union party.

When trade unions affiliate to the Labour Party, they have a right to say what they think the policy of the Labour Party should be. They pay their political levy and they have as much right as any other section of the party to determine Labour policy. Let us get that point clear. But there is something else which must be borne in mind. Because the trade unions said to the Labour Government "You are moving in a direction which is likely to split the party and you ought not to move in that direction", the party leadership finally decided to accept that argument. The Labour Party have learned the lesson of what happened to the Labour Government in terms of statutory wage control. It did not work, and we should not commit that error again.

We shall not repeat the difficulties which Labour went through on statutory wage control between 1966 and 1970—and if a party does not learn from its mistakes, it is not a serious political party. It is all very well for the Liberals to take this, that or the other view, but they will never be the Government—or at least not for a very long time, even though they may have one or two successes. Governments must learn from experience. Our experience was that such an argument did not solve the problem with which we were faced.

The programme outlined by my right hon. Friend the Member for Bristol, South-East clearly shows the way in which we shall solve this problem; namely, by an alternative economic programme and policy. That is where the future of our country lies. The future certainly does not lie in the provisions of the Green Paper, nor does it lie in the concept of the corporate State. If that line is pursued, there will be increasing repressive legislation and there will be more and more demands for greater and greater control of the trade unions.

I wish to conclude by pointing out that in the Soviet Union there are no free trade unions. They do not negotiate wages and conditions, but the factory unions are more concerned with welfare matters, what happens in the canteen, and whether they have one or two lavatories. In Spain, where there is a Fascist corporate State, they do not even have trade unions. This is why some people are now putting their money into Spain, because wages and conditions there are pretty low. But in this country we have a free trade union movement, and this Green Paper is a blow which is aimed at free collective bargaining. Even in a Socialist society, I believe that trade unions will need to be free and strong and will need to carry through collective bargaining even against their own State and their own Government. That is my creed and it is what I believe in, and this is 1N11) I hope that enough hon. Members will have sufficient common sense to reject this document.

6.0 p.m.

Photo of Mr Tom King Mr Tom King , Bridgwater

I will not intrude upon the last part of the speech made by the hon. Member for Liverpool, Walton (Mr. Heifer), in which he defined the correct relationship between the trade union movement and the Labour Party. I formed the impression that, though he chose to address those remarks to the Conservative benches, they were meant for internal consumption.

I should like to take up one point made by the hon. Gentleman, because it was the only point on which he directed himself to the contents of the code. I share some of his misgivings about the element of £1 plus 4 per cent. There is clear evidence that it is not working out in the way that it was originally envisaged it might, as a means of helping the lower-paid. That is the only matter about which I can agree with the hon. Gentleman.

Listening to the speeches of the right hon. Member for Bristol, South-East (Mr. Benn) and the hon. Member for Walton, I began to think that I had come to the wrong debate. From the hon. Member for Walton we had an interesting preview of the policy of the Labour Party for the next election. On the other hand the right hon. Member for Bristol, South-East failed singularly to make any constructive comment on the code, even though I intervened in the course of his speech to urge him to address himself to it. The right hon. Gentleman's only comment on price control was that it should be permanent. He made no comment on the form that the control should take and what variation it should have. He dealt with food price controls, the element of subsidy which the Labour Party would recommend and the cost that it would involve. But his sole contribution on price control was that it should be permanent.

At the end of the debate we shall be asked to vote on the Opposition's amendment dealing with price control; yet all we are told is that it should be permanent. We are offered no other information. The speech of the right hon. Member for Bristol, South-East was singularly lacking any sort of contribution of the kind that we might have expected, especially when the Leader of the Opposition constantly harangues my right hon. and hon. Friends on the need for a full debate on the code and on the need for opportunities to submit amendments to it.

Hon. Members on the Government benches recognise that there is not this opportunity. I regret it, but I appreciate the reasons why. Now that we have a debate, we are subjected to hectoring, haranguing speeches on general policy, but so far we have had no attempt to make constructive amendments to the code. We hope that the right hon. Member for East Ham, North (Mr. Prentice) will make a more constructive contribution later in the day.

Photo of Mr Reginald Prentice Mr Reginald Prentice , East Ham North

The view of the Opposition is that it would have been more sensible to have debated the code in a way which allowed for amendments. As it is, in one day we have to approve or reject the code. Of course we are concentrating on general principles. and I shall do the same.

Photo of Mr Tom King Mr Tom King , Bridgwater

The right hon. Gentleman is wrong when he says that at the conclusion of this debate we shall accept or reject the code. That will be on another occasion. There is the possibility of two or three debates on the code, as my right hon. Friend the Prime Minister has made clear. At this stage we are merely taking note of the code. There is no need for a vote at the conclusion of this debate. I regret that there will not be further opportunities to discuss it in detail, perhaps in Committee. But I recognise the reason why. In the face of a shortage of time and the desire to make amendments, it is even more extraordinary that the Opposition offer no constructive criticism. I cannot comment further on that, but I hope the right hon. Member for East Ham, North will recognise the force of what I say. I hope that the remainder of the debate will invalidate it, because I for one always welcome constructive criticism, and I hope to deliver a few comments of my own.

I support one of the arguments of the hon. Member for Walton. I, too, have reservations about the use of the word "fair". It is not an absolute word. Sometimes it is pronounced as though absolute fairness had been achieved. I do not consider the policy to be fair. However, I consider that when the Government have accepted the various amendments that I am about to suggest it will be as fair as is practicable in the circumstances.

We get ouselves into some difficulty if we overstate the case of fairness. Obviously, there is a strong element of rough justice in this policy, facing the problems which exist. Our aim must be to achieve a policy which is as fair as is practicable in the circumstances. It does not help to overstress the total fairness of it because obviously that is a perfect situation which is impossible to achieve.

In the code now produced I hope that the trade unions will recognise that there is much less justification for their criticism about the lack of price control. Any trade union leader who moves in boardroom or city circles will find the opposite point of view being expressed. The right hon. Member for Stepney (Mr. Shore) has conceded already that on the prices side there are very stringent controls. Nor should we ignore the impact that they are having on the business community. A friend of mine who travelled up on a commuter train this morning told me that four out of six people in his carriage were reading the Green Paper. We may take that as an indication that the message is getting through. They are taking their responsibilities seriously. It is not insignificant that 12 pages of the Green Paper deal with price controls, compared with four pages dealing with wage control.

I have already covered the point on the pay side about the £1 plus 4 per cent. Once again we have slipped into the dreaded minimum situation where everyone expects £1 plus 4 per cent. I regret very much that a situation seems definitely to be emerging where this will not be used by anyone as an opportunity to help the lower-paid. This is a matter at which we must look carefully in phase 3.

We should not ignore the real benefits, even within what are considered to be strigent controls on pay, for helping the lower-paid. There is facility for reductions in hours, for example. For anyone on earnings of £20 a week for 42 hours, each hour's reduction represents another 31 per cent. on pay. If two hours come off the working week it represents another 7 per cent. People working longer than the average working week can be helped considerably.

I welcome what my right hon. and learned Friend the Minister for Trade and Consumer Affairs said about the real incentive to pensions. There are areas which union negotiators have neglected for far too long. I have been engaged in many negotiations with the unions and I have felt that they have not paid enough attention to this aspect. People are always worried about the cash effect of an offer. They never pay sufficient attention to fringe benefits. In terms of pensions, holidays and redundancies it is possible for this policy to be used in a positive way to improve the benefits of many of those engaged in industry.

On the other hand, I am not happy on the pay side that some people may be doing better than they should. I have serious reservations still about permitting all incremental payments. I find it slightly bizarre that civil servants, who benefit from them, seem to be most distressed about other aspects of the Government's policy. Because of a lack of organisation, there are many industries which do not enjoy this kind of facility but whose workers are every bit as much entitled to incremental payments as those who enjoy them at the moment. I have certain reservations also about the open acceptance of long-term agreements overriding national policy. The question of allowing long-standing agreements to go through automatically should be reexamined.

I hope, too, that the Government will look again at paragraphs 105 and 106. A traditional loophole in the policy concerns the mobility of employees and the number who transfer. From my own knowledge of industry it is clear to me that this has been exploited already by a large number of people. It is a major loophole, and the comments in the Green Paper are very superficial.

On prices, I welcome the encouragement to exports. Again, the policy has very positive aspects about it which can be used to great effect.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

Earlier in his remarks the hon. Gentleman referred to holidays. However, it is laid down clearly in page 17 that any holiday agreement can go up to three weeks. There can be no negotiation on any period beyond three weeks. So even on holidays the policy is strictly within limits. Anything beyond three weeks is not permissible, disregarding public holidays and so on.

Photo of Mr Tom King Mr Tom King , Bridgwater

It is three weeks plus the various public holidays plus the other days. My point is that in some industries four weeks is the practice and in others it is still only two weeks. Here is another area which will enable certain industries to come up to the level of the better industries. I appreciate that we cannot go over three weeks, but those at present on two weeks might, because of this position, get three weeks' holiday somewhat sooner.

I am concerned about the investment situation. This document is not consistent in its attitude to investment. It talks about "safeguarding investment" in paragraph 7(ii), but in other parts some very odd statements are made. For example, paragraph 37 states that where a company is making a loss it may increase its prices to cover its costs. That does not seem consistent with the policy of encouraging that company to move on to a position to invest, because some return over and above just covering costs will be necessary if investment is to be possible.

On productivity, the Americans were able to classify different industries and to look for different productivity returns. This 50 per cent. blanket is palpably unfair to the service industries. Against that, other industries might do better in some circumstances. If the Government impose tight controls on prices which do not allow full recovery of raw material costs, which is not being granted in certain cases, and do not allow full recovery of labour costs, some companies would see only one end to that road, and that would be an end that no one would wish to see. If that is coupled with the delay in approving price increases for unavoidable costs, the net combination of that package could be disastrous.

There must be flexibility and speed in acting on these matters. The Takeover Panel operates by telephone, and it is available for comment and advice. I hope that these bodies will be flexible and available to give quick answers. I hope that this policy will be employed in a positive and constructive way. It can be seen as a straitjacket. Obviously, it introduces a number of controls which are new to British industry. In the areas that I have mentioned there are many aspects which could have a positive and beneficial effect such as in productivity, in that that blunt instrument which I have criticised can still be an effective driving force towards productivity in promoting exports, in improving pension arrangements in companies, and in concentrating union attention on areas which in the past have not occupied as much attention as they deserve in redundancy terms and other fringe matters. These points could be of great benefit.

The policy could be used for the benefit of the lower-paid. I was in industry when the Labour Government's proposals were being implemented. I felt that they were too negative and missed the opportunity, even during the standstill, during the nil norm and the proposals that followed. That could have been a time for pushing on those people who were well behind the rest in the race. I hope that we have learned from that lesson. I hope that we will use this period to push on those who are behind. I believe that the policy can be used for the benefit of the lower-paid.

It is tragic that so many people in that category are taking industrial action against this policy. I sincerely believe that if they destroy this policy and we go back to where we were they will be much worse off at the end. If the car workers, the power workers and the various other more powerful, better organised sections of the community roar away again, those groups who at the moment feel most upset by the policy will suffer most.

I hope that this policy will succeed. Mr. Victor Feather is reported today as saying that if a policy can be made to work it is a victory for the whole nation. I believe that it is a victory for the whole nation in which those who are at the moment behind can be helped the most. For that reason, I have advanced certain comments to my right hon. and learned Friend and I hope that the House will support the policy.

6.15 p.m.

Photo of Mr Lewis Carter-Jones Mr Lewis Carter-Jones , Eccles

Much emphasis has been placed on the concept of what is and what is not fair. The basic necessities of life include food, clothing and shelter. If we want a working policy we must have an element of fairness in the prices of food, clothing and accommodation.

If this document had been presented in the City it would have been fraudulent, because it is based on fraudulent premises. I will try to explain. The Government remind me of a man who, having murdered his mother and father, asks the court for mercy on the ground that he is an orphan.

The price increases about which we are talking have been caused by the Government. Food, shelter and clothing price increases have been deliberately induced by the Government. They have created the situation and now they are crying about it.

I represent a working-class constituency with a fair share of pensioners and disabled people. If my constituents were given a choice of what they would like to see done, bearing in mind the Conservative Government's "Fair Deal for Housing" and "Fair Deal at Work", they would ask the Government to control food prices.

I am an unrepentant supporter of food subsidies. In a fair, civilised society the necessities of life should be made readily available. We should legislate for food, clothing and shelter, and always in favour of the lower-paid—the under-dog.

The Government have deliberately created an unfair situation. They are trying to produce a massive piece of machinery to control the unfair conditions that they have created. Many people say that it is a difficult and massive problem to maintain food subsidies. I suggest that that is the problem that the Government ought to tackle. They should be seeking to rule out injustices in this country.

Let us consider some simple examples. A pensioner or a housewife—not the managing director of a large company—will find that a substantial amount of his or her income is earmarked for food. The Tory philosophy about not interfering with food prices is so much hogwash. If the Government really intend to tackle the problem of inflation they should start where it hurts the lowly-paid most—in the food shops. There may be difficulties in producing effective food subsidies, but it is the job of the Government to tackle severe social problems. It is the Government's job to make sure that all the people have food all the time, and in sufficiently good quantities. In a civilised State with a highly developed sense of social conscience that is the Government's job. The trouble is that the Government do not have a social conscience.

Photo of Mr Tom King Mr Tom King , Bridgwater

indicated dissent.

Photo of Mr Lewis Carter-Jones Mr Lewis Carter-Jones , Eccles

The hon. Gentleman may disagree until he is blue in the face.

Photo of Mr Tom King Mr Tom King , Bridgwater

That may be the duty of the Government, but it is surely the duty of the Opposition, if they do not like what the Government propose, to suggest alternative ways in which the problem can be tackled. The hon. Gentleman says that he does not care how the Government provide subsidies, or what they cost. He may like to know that if the suggested subsidies had been paid since 1970 the sum involved would be £2,000 million, and that if pensions were increased immediately to the amount suggested in the Labour Party's document the total would be £2,000 million, making a total of £4,000 million. Perhaps the hon. Gentleman will tell the House where the money would come from.

Photo of Mr Lewis Carter-Jones Mr Lewis Carter-Jones , Eccles

There is no problem about this. All that the Government have to do is to make certain that the basic necessities of life are available at a reasonable price. That is what they ought to do. That is what they must do if they want to show that they mean business.

I invite the hon. Member for Bridgwater (Mr. Tom King) to come to my constituency—after which I shall go to his—and ask anyone on the street what he thinks the Government should do to help the situation. I feel sure that the answer he will get is "Tackle food prices", yet it is the Government who have allowed food prices to rip-roar forward. They have encouraged them to do so.

Photo of Mr Lewis Carter-Jones Mr Lewis Carter-Jones , Eccles

I shall not give way again. I have made the point. The answer is perfectly simple. I believe in subsidising the cost of food so that it is available to the lower-paid at a reasonable price. If it costs money to do that, the Government must find the money. I can think of projects on which money could be saved. I have in mind Maplin airport—

Photo of Mr Lewis Carter-Jones Mr Lewis Carter-Jones , Eccles

— Concorde — [Interruption.]—and one or two other things.—[Interruption.]

Photo of Mr Selwyn Lloyd Mr Selwyn Lloyd , Wirral

Order. The hon. Member who is in possession of the Floor is getting too much assistance with his speech.

Photo of Mr Lewis Carter-Jones Mr Lewis Carter-Jones , Eccles

For which I am duly grateful, Mr. Speaker.

The hon. Member for Cornwall, North (Mr. Pardoe) said that action could not be taken to deal with increases in food prices because of the rules of the EEC When we come to the other side of the coin, we are told that VAT is a flexible, just and fair tax. Perhaps I may give the House just one example of this "fair" tax.

It is probably true to say that many products have alternative uses and, there- fore, it is necessary to be careful when considering them in relation to purchase tax and VAT, but there is one product about which I have been campaigning in this House for months which has no alternative use. I am referring to incontinence pads for the worse-off and severely handicapped in our society. If somebody can suggest an alternative use for an incontinence pad I shall apologise and withdraw my opposition to the imposition of this tax. VAT is to be imposed on equipment made specifically for the disabled and severely handicapped, and attempts by hon. Members on both sides of the House to get the tax removed have failed because the Government are afraid of a flood-tide of applications for exemption which would include children's clothing.

If the Government wish to provide justice for all, and especially for the lower-paid, they should provide protection for the necessities of life. I urge the Government to reconsider their policy on food prices and subsidise them. If they want to impose VAT, they should exempt the necessities of life and also children's clothing. I suggest, too, that in order to provide dignified housing they should dispense with the Housing Finance Act, which is causing grave, severe and increasing hardship.

I end in the way that I began, by saying that the Government are like a man who, having murdered his mother and father, asks for leniency on the ground that he is an orphan. The Government have created this inflation. They should now be honourable and do another about turn. They should dispense with this fraudulent document and tackle the real cases of inflation at the root, at the level at which the lowly paid have to pay the most for the basic necessities of life.

6.26 p.m.

Photo of Mr John Stokes Mr John Stokes , Oldbury and Halesowen

I hope that the han. Member for Eccles (Mr. Carter-Jones) will forgive me if I do not follow him in what he said about food subsidies, because I believe that they would, in the end, lead to rationing and further wartime controls.

I greatly enjoyed the first part of the speech of the right hon. Member for Bristol, South-East (Mr. Benn). I particularly appreciated what I thought was his accurate diagnosis of the present agony of the Conservative Party because of the situation in which it finds itself, and which no doubt must be partly the reason for the rather thin attendance on this side of the House, though why there should be a thin attendance on the other side I do not know.

I also, to some extent, enjoyed the remarks of the hon. Member for Liverpool, Walton (Mr. Heffer) about the corporate State, which I fear had some truth in them, but I do not believe that we can make the best use of the few hours that we have in which to debate the code by trying to make party points.

I should like, first, to try to look at the code, which, after all, is a Green Paper and is called a consultative document. As hon. Members will realise, there is much in this document which I do not like. I find the rigid and detailed controls proposed on what is a living and dynamic economy impossible to carry out except in the short term. Nevertheless, I accept the necessity for a document of this kind with these what I can only call Draconian rules as a temporary measure in the present emergency, and I hope that the Labour Party will not only justify its own alternative policy but will try to improve and amend the code.

If one looks at this document in the context of what is happening in the outside world, one finds that there are some who apparently do not believe in consultation at all but who hope by force and by injuring the nation to make the Government give way and change their policies. They seek to make the Government change their policies not as a result of this or similar debates, but as a result of naked force in other places. It will be interesting to see in tomorrow's national Press how much space is given to our debate in this Chamber compared with that given to the special meeting of the TUC.

The Opposition amendment refers to socialist policies democratically controlled by Parliament". But many people will feel that the nub of the problem is: will they be so controlled? Surely there are some in the trade union movement now, and some who support these strikes, who hope that the trade union movement, in alliance with the Labour Party, can get its way, either with, or if necessary without, the role of Parliament. That shows how far we have travelled in our view of the rule of law since 1926.

As the present strikes and disruption continue and more and more of the nation's daily life is affected, there will be a growing demand from ordinary people not just for a strict Green Paper but for some further action by the Government. The Government must govern. If industry and services are to break down to such an extent that the life of the people is threatened, ordinary people will expect something more from the Government than a highly-detailed Green Paper.

I will not elaborate on that now, but there are clearly many actions which the Government should consider and should be prepared to take if, for instance, the gas strike, which is affecting hundreds of thousands of people in the West Midlands, should be allowed to continue. What is lacking is not the details of the Green Paper but leadership from the Government, the mobilisation of public opinion behind the Government. I do not believe that we would then see this country go down in such an absurd muddle as now we see.

There is one point of detail in the Green Paper that I should like to take up, having spent most of my life in personnel work in industry. That is paragraph 105, dealing with new recruits to existing jobs and saying that they should not be paid more than those they replace or more than the rate currently paid by that employer to someone doing the same job. If the Government believe that that paragraph can be implemented, they will believe anything. I will give them one example which came to my notice last week. A waitress on £18 a week asked for a rise. She was told that it was impossible and she resigned. Immediately, a replacement was engaged at £4·50 extra. That, I am afraid, is bound to continue to happen.

Yet the paradox is that never have people as a whole, with certain exceptions that we all know about, been as well off as they are now. Never, certainly, have the moans been so loud. At a time when living costs have risen by an average of 8 per cent., wages have risen by twice as much. So I hope that we shall not have too much sob stuff on that score from the Labour Party.

Everyone—this is a human failing—wants to be better off without doing any more work. The hon. Member for Eccles expects the Government to find the money to support us all. Where is that money to come from? From all of us as taxpayers. Life is not like that. The sooner the Government tell us that we all have to work, and probably work a bit harder, the better—while at the same time, of course, reducing their own expenditure.

I should like to examine the code from the point of view of a longer term than the few months for which I hope it will be in force. I do not believe that any Government in a democracy can control the whole of our economic life for more than a very short period—say three to six months. The shock of this control has to be severe but it has to be sharp. Then, I hope that freedom, competition and market forces will be allowed to come back into play.

I can imagine nothing more disastrous at the start of our Common Market membership than for us in Great Britain to put our economy into such a straitjacket and to penalise those firms and individuals who are the thrusters and the risk takers upon which the capitalist system in the end depends. The climate of State control, which in effect means control by civil servants, who for all their many and great virtues are not, and never pretend to be, businessmen, would he disastrous for a great manufacturing and trading nation. To extend the tempo and mores of the unfortunate nationalised industries to the whole of the private sector would be an act of incredible folly.

I wish that the Government and other hon. Members would stop talking about fairness. I fear that what they really mean is not fairness but equality, which is quite a different matter. Justice in life is, and unfortunately only can be, a kind of rough justice, and any attempt at equality is bound to end in a totalitarian State. We all know that controls lead to fiddles, evasions, black marketeering and spivs. We have seen all this before. I find it hard to believe, and intensely sad, that a Tory Government will give the coup de grâce to capitalism—which is what the Green Paper does.

The question to which the Government and we their supporters should address ourselves is how soon we can tread back the road to freedom. Certainly it cannot be before we get collective bargaining right. At the moment, the scales in free collective bargaining, which I believe in, are grossly unfairly tipped on the side of the unions, for two reasons—first, because of the abuses of picketing and the picketing of suppliers and customers, and, second, because of what I can only call handouts by the State, which no other country does. It was on these two rocks, I believe, that free collective bargaining foundered. I would prefer to see the whole of the Industrial Relations Act scrapped if we could tackle now, and tackle vigorously, the abuses of picketing and the absurdities of social security benefits to strikers.

To sum up, the Price and Pay Code to me is a sort of blood-letting—necessary for a short time but fatal if the process is allowed to last too long. If it is the latter, it can result only in the death of the patient.

6.38 p.m.

Photo of Mr Neil Kinnock Mr Neil Kinnock , Bedwellty

If one does not mean to pay a great deal of attention to what the previous speaker has just said, it is customary to say that one will not follow the hon. Member too much. In fact, I would find it impossible to follow the hon. Member for Oldbury and Halesowen (Mr. Stokes) because in the greater part of his speech he gave voice to theories from another world and another time than those in which I live. We are at such divergence in our beliefs about the way in which Britain is now run and about the problems of Britain that I could not possibly find anything to say about his speech.

That is, except for one thing. At the beginning of his speech, the hon. Member encouraged me by saying that he shared the fears of my right hon. Friend the Member for Bristol, South-East (Mr. Benn) about the corporate State. But he then said that the sooner the Government made us sit up and work the better. He also demanded that we should get greater controls, further action against disruption and strikes. The motto of the Italian Fascist Party was "Work, believe, obey". They were beliefs held both before and during the war in Italy and Germany. If the hon. Gentleman is allying himself with those of us who are striving against the corporate State, I have little comfort or strength from his alliance.

Photo of Mr John Stokes Mr John Stokes , Oldbury and Halesowen

I point out to the hon. Gentleman that I fought against the Nazi and Fascist systems in the last war and was wounded in so doing. I have no truck with the corporate State. I also point out that I represent an industrial city with a large component of working class.

Photo of Mr Neil Kinnock Mr Neil Kinnock , Bedwellty

I appreciate that. I owe my own freedom in some measure to the hon. Gentleman. My only contribution to the war effort was in giving up bananas for the first three years of my life. But the fact remains that, without trying to be Fascist, we are seeing through this procedure the development of a State that relies on bureaucratic machines and devolves responsibility to them, that exalts and lifts the idea of national interest above all other interests. These seem to me to be the elements of a State which asserts itself as a body to be considered above all individual or sectional interests. That is something I fear, and. indeed, I see the elements of it, as hon. Members on both sides do, in this code and the manner in which it has been put forward.

Since the war, Governments in the western world have grappled with the problem of trying to control inflation while maintaining the elements of democracy in their societies. Very few have had marked or measurable successes in this respect, and it has always been the widely held view that only by increasing control over economies that an eventual solution will be found to the kind of inflation we have today.

I think the Government have attempted to solve the dilemma of matching democracy with the battle against inflation simply, and possibly temporarily, though I shall point out the dangers later, by ditching democracy in pursuit of their counter-inflationary policy. We have not got a corporate State in this country with jackboots or black shirts, but we are getting one in its stockinged feet.

The Prime Minister talks about consultation and the Minister talks protectively about a balanced series of pro- posals in the Pay and Price Code, but their words wrap up a rigorous attempt once again to subordinate collective bargaining while providing a facade of control over the other elements in the economy. The object is to win a respite from the continual inflation so that the Government can simultaneously give the appearance of grappling seriously with all the factors which institute and encourage inflation while actually dealing, or attempting to deal, with only one sector —labour costs.

At the moment we talk a great deal about fairness—at least we on this side and the Government do. The Government have advocated the Counter-Inflation Bill on the ground of being fair. They qualify the code by talking of it as being fair. But last week I listened to hon. Members opposite on the subject. Perhaps they are more honest or more cynical than the Government. They said that it would be impossible to introduce completely fair policies, and they acknowledged that the counter-inflation policy was not fair. I see the hon. Member for Enfield, West (Mr. Parkinson) smiling as I recount his words, amongst others. But if hon. Members opposite are being honest, the Government are being dishonest by pretending that it is possible to be fair in the application of this policy. At least we can give credit to back benchers opposite for their directness, honesty and insistence that the Government should get on with the job and cease their nonsensical talk about trying to be fair to everyone when they are being partisan and sectarian in pursuit of those policies.

The principle of the code and the policy is supposed to be equality of sacrifice between the earners in society and the owners of wealth. The difference in the code is that the provisions so far as they extend to prices, fees, dividends and profits are a loosely cast, very thick-meshed net, while in so far as they extend to wages and lower salaries they are a tightly drawn and thickly-woven blanket. There is a fundamental difference between the way wage and lower salary earners and other sectors of income-getters are treated by the code.

The better favoured sectors of our labour force, known by the general title of "Executive personnel", do not do too badly out of the code. I suppose that this is the reward for the great efficiency and great enterprise they have shown in getting Britain into the mess it is in now. According to the code, they can be regraded for greater effort and for greater responsibility; their golden handshakes are safe; their expense accounts are safe; their incremental scales are safe; their noncontributory pension schemes are not affected. This contrasts strongly with the treatment of wage earners and lower salary earners in general.

When we get to the system for controlling prices and for controlling wages, the Government have a volunteer police force to control wages. No wonder there are about 20 fewer paragraphs covering wages than there are covering these other things, for the simple reason that an employer has an automatic alibi in turning down or suspending wage negotiations. During the prices and incomes policy of the Labour Government, a personnel manager could say, sympathetically, "I would love to be able to pay you but this damned Government will not let me." Now we go through the whole process again, and employers have a ready-made alibi in the £1 plus 4 per cent. norm.

The code is complex to the point of chaos. What is the commission to do? It has functions such as calculating, or rather insisting on, price reductions where companies have charged too much; abating allowable costs when companies charge too much; analysing unit costs for the purpose of establishing what profit a company should make; relating profits to past trading records, disallowing cost increases; and, under paragraph 35, checking on the quality of goods to see whether quality has been cut while prices have remained the same.

This would be formidable task for 54,000 civil servants each armed with a computer, a blind eye and a new pin. But the Government are talking in terms of hundreds of people at the most to operate this vastly complex system. One can only conclude that these people will be hugely overworked or that the Government do not intend this sector of the policy to work, for otherwise they would be providing a much larger manpower force to deal with it or would have simplified the provisions to make it possible for them to be adequately policed and fairly dealt with.

So the contrast between the simplicity of the pay restrictions and the complexity of the price restrictions is the first basis for suspicion, even if we neglect to take account of the other aspects of the Government's policy which have caused such distrust and distress in our society.

Then we have this gimmick of allowable costs. I recognise that there are companies which will take the functions charged to them very seriously in calculating rises in prices by relating them to allowable costs, but then we have to take account of the costs which are to be allowed for. First, there are those arising from international agreements. That is an open sesame to prices to start with. Next, materials, components and fuel costs; in the sheer complexity of trying to operate the policy it is inevitable that frequently and in large amounts company after company, especially those in category 3 and less specially those in category 2, will be able to get away with translating costs of this kind directly into prices without there being the faintest chance of their being nipped by the Price Commission or anyone else.

Then we come to import costs. No one need abuse the special allowance made by the Price and Pay Code in this respect, but it is a fact that import costs will go up—even if the exchange rate remains more or less as it is now—by about 9 per cent. over the next 12 months. As a source of inflation, obviously this presents very considerable dangers both to the country and to the efficacy of the Government's policy even if it were to be successful in all other respects.

Investment is safeguarded—and I do not blame the Government for safeguarding it—but it is safeguarded to the point of shoring up the lamest of lame ducks. If a company makes a loss under the code it can put up its prices enough to cover that loss. If its difficult trading position can be ascribed to difficulty in attracting investment it can put up prices enough to secure investment. Those are facts, and contrast very strangely with the rights and privileges of special cases, and the allowances made in respect of people who want extra wages. In paragraph 46 there is even a minimum earnings guarantee for those companies which can calculate how much they need to charge in order to provide a 5 per cent. return on capital before they become subject to the provisions of the code. There is loophole after loophole, and I am drawing attention only to what I believe to be the main loopholes here. There is no fairness of treatment or fairness of opportunity here—

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

Will the hon. Gentleman comment very briefly on the 5 per cent. pre-tax profit and, therefore, the 2½ per cent. post-tax profit, and set it against the present 12 per cent. cost of borrowing money?

Photo of Mr Neil Kinnock Mr Neil Kinnock , Bedwellty

The hon. Gentleman makes the obvious point that this is not a generous giveaway. In return, one must make the obvious point that there is this pretension to equality of treatment, but when the exception is made in this respect and built into the code there can be no pretension to equality of treatment. I repeat what I and other hon. Members have already said, that unless such a policy is observedly fair, and unless the Government have gone to considerable, almost tortuous lengths to ensure equality of treatment to all sectors involved, they prejudice their own chances of making the policy work even before they start. In answer to the qualification the hon. Gentleman places upon paragraph 46 and its effects, I suggest that there still will not be enough to satisfy people to look on the Price and Pay Code as a charter for equality of sacrifice or as a charter for equality of contribution to the national need as expressed through the Government's policy.

The dividend position is unsatisfactory. We can only take what we read here, from which it appears that companies are permitted to raise dividends to defend themselves against takeovers. One can see the logic of that, but defence against takeover bids suggests all kinds of opportunities to create a false situation in order to permit a rise in dividends. Companies can raise dividends to recover from an adverse trading position, and a new company or a company that has a pre-standstill dividend commitment can also raise dividends. Hon. Members opposite may see that as fair trading, as an obligation that must be honourably maintained or as a sensible stratagem for a company, but that is not how it will be seen by the vast majority of people who become affected by the code.

The greatest anomaly is the division of companies into three categories. The Government spokesmen have told us repeatedly during the passage of the Counter-Inflation Bill, and today so far as they have been heard, that there will be a tight and stringent control over the really big companies—the 150 to 190 companies which will become subject by name to category I. They are the price leaders and have the most influence, but I insist that those people who are reacting to an inflationary prices situation by spending their lower wages and salaries do not care whether those prices are being charged by the big companies which are the price leaders or by the smaller companies which are the price laggers. Until we have a policy which actively scrutinises and actively discriminates against all sources of inflation as they are translated into retail and wholesale prices, we shall all be looking in vain for a useful response from the trade unions. I would certainly defend the trade union attitude in this respect.

What will be the general impression that wage earners will have? Their food prices are not controlled by this so-called Price and Pay Code. Their rents are not controlled. The house prices they have to pay will not be controlled There is no minimum earnings guarantee for them, as there is in the case of some companies. There is no security for them, as there is for executive personnel, in respect of redundancy payments and pension arrangements because they ate to be as strictly controlled as they are now. There is no provision, apart from the £1 plus 4 per cent., for additional earnings, other than overtime, but Conservative Members have said that this is a great opportunity for lower-paid workers. To save time I refer those hon. Members to an article written by Victor Keegan in The Guardian on 26th February on this very point. It spells out the unfairness of the policy to low-paid workers.

The fact is that by instituting this policy the Government are attempting to change trade union negotiators into a set of crumb shedders: "Here is the £1 plus 4 per cent.—sort it out amongst yourselves". That is not possible, because everyone's view of his own income is highly subjective. There is no good logic for trying to move small amounts of money between one sector of a work force and another. That is only doing the job that management should do. It is subsidising inefficient management, and permitting the Government to get away with a ridiculous trick of telling workers that they can all be better off by providing them with a £1 plus 4 per cent. pool to share between themselves. That idea will be rejected in that context, not simply because it would not in individual cases amount to a large enough wage rise, although it will be rejected on that ground as well, but because it tries to institute a procedure of conflict between groups of workers inside industry. They will not be fooled.

Nothing illustrates more clearly the organic difference between earners and owners of money, for those who rely on property and capital for income, even though they are temporarily affected, will find that the latest hoarding of their assets will just bring in high returns in future, but the earnings forgone by the wage earner is money that is gone for ever. Now we have a situation where that ultimate difference between labour and capital is exacerbated by the intervention of the State in introducing sectarian legislation which subordinates free collective bargaining, and which simultaneously sets up bureaucratic State agencies responsible to no electorate or constituency, and devolves on them authority and responsibility and, ultimately, blame that they themselves are trying to dodge by a political trick.

Nothing in the code can commend itself —and that is really saying something, because all of us equally face the difficulties of inflation. The Government come forward, allegedly seriously, with a policy which is allegedly fair, yet there are such gaping inequalities and iniquities in it, in the atmosphere of industrial unrest which we now have, that unless they can do something to satisfy the criteria of fairness which have been presented by the bodies outside, there is no chance of their policy succeeding or even surviving.

There are hon. Members opposite who quarrel with the Government's diagnosis of inflation and the cure which they are offering. There are people in marginal Conservative constituencies who are worried about the Government's policy turn round. But the major sufferers will be the working people of Britain.

7.1 p.m.

Photo of Hon. Adam Butler Hon. Adam Butler , Bosworth

The hon. Member for Bedwellty (Mr. Kinnock), did the House the courtesy of directing most of his comments to the consultative document, and I shall do the same, so that what I say will have some relevance also to what he said. In the latter part of his speech, the hon. Gentleman tried continually—it was a basic point in his argument—to belittle the effectiveness of the price control, comparing it with what he would have us believe is the minimal increase in people's earnings which will be allowed. That is a false representation of the picture.

There will be an almost guaranteed 7 per cent. or 8 per cent. increase on average earnings during the coming 12 months, and we have the most stringent price controls possible outside the fresh food sector. I put it to the hon. Gentleman that he would do the country a service if he let it be generally known that at the end of this year there will still be an increase in the living standards of the people.

I shall direct most of my observations to details of the code itself. I welcome this opportunity to put certain matters before my right hon. Friend, and I am sure that they will be noted. I give a general, if qualified welcome to the code itself, which, if it be necessary to embark on this enterprise at this time, provides both the guidance and the discipline essential to its success. I believe that the enterprise is necessary and, therefore, I recognise that both the pay code and the price code are essential.

One matter which should be of the greatest concern to hon. Members on both sides of the House is the way in which price control affects the profitability of industry. There have been several references to the requirement that half of wage increases shall not be passed on and must be recovered in productivity. This is rough justice as between manufacturing industry and service industries, and, I suspect, within manufacturing industry as a whole. In view of what has been said about that by several of my hon. Friends, I hope that it will be noted.

The Government are forcing industry to bring about a certain minimum productivity, calculated at 3 per cent. or 4 per cent.—and "forcing" is the key word, because beyond that point there is no incentive to cut costs one penny further. It is no good telling the CBI or other representatives of industry that they should try to achieve this in the national interest, since for 15 months they have restrained their profit margins and prices with no response from the other side of industry. One cannot blame them now if they do not go one centimetre beyond the legal requirements of the code.

The margin of profit requirement and the need to match cost cuts with price cuts will remove incentives to business efficiency, and this could be the first step towards the sort of uninspired management, or, indeed, mismanagement, which is all too frequently associated with the public sector, and which is entailed, apparently, in one part of the alternative policy put forward by the Opposition, namely, greatly to enlarge the nationalised or public sector.

There are two consolations. Phase 2 is essentially short term. In our debates we tend to forget that phase 2 comes to an end this autumn. It is essentially short term, and one can understand the Government's attempt to use certain weapons to overcome inflation—weapons which are not only anathema to the Government but are potentially destructive of the spirit, drive and incentive of the private sector.

The other possible consolation is that there is some attraction in a policy which forces companies to consider the possibility of price reduction. Inflation feeds on itself in a number of different ways, not least in the belief which it engenders that prices must go up regardless. I declare an interest here, in that I am still employed by the Courtaulds group. The Courtaulds record—one can see it in the accounts—is that prices overall in the year ending March 1971 did not go up, but £60 million worth of extra costs were absorbed. Something similar may be possible in the rest of industry.

To take a little further the thought about attitudes to price rises or reductions, I can tell the House that the principal industry in my constituency is hosiery. Prices in that industry have decreased progressively and regularly over the years, and there has undoubtedly been an attitude of mind among the salesmen involved that they must go out with yet another lower price. I use that just as an example. In business generally today, however, be it the motor car trade or anything else—save for a few exceptions, such as hosiery—the attitude is that prices must rise.

For the short time that it is in effect the Government's measure may help to change that attitude. Savings can be made. The sharp shock of this legislation may work, provided that we can go on with the continued curb which is provided by competition. In this connection, I welcome what is said in paragraph 7 of the code that the general principles on prices are meant to reinforce the effects of competition", but I should like my right hon. Friend to amplify that statement a little because I do not find it quite as strongly emphasised in the document as I should like.

Those two consolations, however, do not outweigh the risks of stultification of business to which I have referred. Nor do they outweigh the potential restriction on investment which industry so badly needs and which has been mentioned frequently. If prices are to be curbed, and if they are lowered every time there is a cost reduction to justify it, where will the money come from for investment? Paragraph 49 spells out the Government's attitude. I should have liked to see it spelled out in slightly stronger language I should welcome an assurance from my right hon. Friend that the commission will not stand in the way of industry. Will the commission be empowered to decide what is and what is not essential investment? I hope that that power will not be added to those which it has already.

Hon. Members on both sides of the House have questioned whether companies can monitor their profits in the way that the White Paper and the consultative document envisage. Of course, efficient companies are producing monthly and quarterly accounts. These provide a good and necessary indication of the likely out-turn. However, there are real imponderables such as the effects of seasonal trading. International factors can completely upset a company's performance during the year. There is the treatment of provisions for stock and other items. Any good accountant will be able to minimise or reduce profits below their true level on a perfectly legitimate and fair basis, so as not to be involved in any uncommercial price changes during the period.

We should also consider the companies whose main expectations are tied up in long-term projects, where success or failure is dependent on a volume of sales which may mature in the second or third year after the project has started. It is nonsensical to suggest that a technical advance or discovery which appears to show cost savings during the first year or during the development period should be passed on immediately by a reduction in the list price. That does not make commercial sense.

I shall pick on one or two other points in the code. First, how will depreciation be treated? I see that it should be taken into account in assessing net profit margins, but it seems to be excluded as an allowable cost. To do that, if I am right in my supposition, is to deny investment and to put a premium against it.

I welcome the accent on cost or price reductions which must occur from the abolition of SET. During the last six months I have received clear evidence that retailers will avoid that obligation. I hope that it will be clearly policed, in terms of the undertakings already given. In an intervention reference was made to the return on capital of 5 per cent. My right hon. Friend suggested that it was a ludicrous figure in terms of the cost of money today. I emphasise that point myself. It is a minimal return and is not adequate for the purpose of further investment. I agree that the definition of net assets employed to exclude borrowings is the right way to treat that subject.

Within industry as a whole we must move further and faster towards profit-sharing arrangements. That is the only way in which profits will be understood by those who work in industry. It is the only way in which profits will lose their wrongly attributed bad name. I hope that my right hon. Friend will confirm that established profit-sharing agreements can continue, and will look again at paragraph 111, which, if I interpretate it correctly, says that new profit-sharing arrangements cannot be drawn up during phase 2.

I welcome the code as part of the Government's statutory policy. It is a brave attempt by the Government to defend the interests of the less well off. I am not immediately thinking of the £1 plus 4 per cent. If a flat cash payment is what is needed, as opposed to the compromise between cash and a percentage, why was the cash payment not accepted by the TUC in its negotiations with the Government at a rate of £2·40? That was the opportunity, and that opportunity was denied. It is not in that respect that I defend the policy in its effect on the less well off.

Photo of Mr Neil Kinnock Mr Neil Kinnock , Bedwellty

The TUC turned down the Government's offer last autumn because it was not enough and because the Government made no concession on the other major requests that the TUC made.

Photo of Hon. Adam Butler Hon. Adam Butler , Bosworth

That will sidetrack me for a short time. Labour hon. Members have been making great play about the corporate State, about democracy and, in particular, parliamentary democracy. The Trades Union Congress, in the tripartite discussions, was trying to put pressure on the elected Government of the day and trying to alter political decisions which they had made or were reserving to themselves. That is why the Government refused to yield on the points to which the hon. Member for Bedwelty referred.

This policy will help those who have fallen behind due to the exploitation by certain groups of their special position at the economy's pressure or strangulation points. Some groups have improved their position at the expense of others through the use of power. It is no good now for those who are less well off to try to use the same tactics. They must recognise that they have fallen behind because of the use of those tactics. The Government's policy prevents those tactics being successful in future. The only way in which that can be done in the short term is through a statutory policy. However distasteful that is to Conservative hon. Members, we support it for that reason. However, we must look further ahead. Phase 3 will provide the opportunity for the Pay Board to consider the special cases. It will be successful only if it brings about some rearrangement in the pecking order of wages.

We must move on to phase 4 if we are to return to economic sanity. The hon. Member for Bedwelty derided my hon. Friend the Member for Oldbury and Halesowen (Mr. Stokes), but my hon. Friend spoke some good sense. He rightly said that if we are to move forward to a voluntary system, as we must, the balances within industry at the point of consultation and negotiation must be more evenly weighted than they are now. When that is so we can return to a system of free negotiation of voluntary bargaining. That is what I and all Conservative Members would like to see brought about.

7.20 p.m.

Photo of Mr John Mackie Mr John Mackie , Enfield East

The hon. Member for Bosworth (Mr. Adam Butler) dealt very ably with the difficulties that companies will face with investments, depreciation, profits and so on. I hope that the Government have taken note of what he said, for, as was pinpointed in our debates on the Counter-Inflation Bill, many difficulties will face companies when they implement the policy laid down in the Bill and in the code.

Several hon. Members have used the opportunity of the debate to discuss not the code but the Counter-Inflation Bill itself. I should like to remain in order as much as possible and deal especially with paragraphs 12, 13 and 14., which exclude food prices from almost any control, with the exception of some manufactured foods.

The one control that would be welcomed not only by the poorer sections of the community, which would especially welcome it, but by every section would be the control of food prices. There is not one hon. Member whose wife has not complained as bitterly as any wife about food prices, and Members of Parliament are not hard up. Month after month the Opposition, with the support of some hon. Members opposite, have raged as the Minister of Agriculture has admitted fantastic but steady rises in food prices-25 per cent. on the last occasion, and it is almost certain to be nearer 30 per cent. the next time. I cannot understand why the Government have not taken heed of all this warning, but, in fact, what they have done is to include three paragraphs in the code to exclude food prices. Yet when the debate began the Minister said that the Government would be as strict as they could be about food prices.

For the past two and a half years we have had nothing but derision from Ministers of Agriculture whenever the Opposition have made any suggestion about controlling food prices. They laughed at our early warning system, although, as I happen to know, it did a mighty lot to keep food prices as low as possible while we were in office. I should like to see some humility from Food Ministers now that they have to do something about food prices, and do it in such a fantastic way after they laughed at us for our efforts when we were in office.

My hon. Friend the Member for Eccles (Mr. Carter-Jones) was rightly emotional about food prices and their control. He asked why food prices could not be subsidised, and I should like to deal with that subject. Now that food prices have reached their present high level, I do not believe that they can be reduced, but they can be steadied, and some effort should be made to keep them steady.

In Committee I put the argument to the Chief Secretary. In reply he said that my arguments advocating food subsidies had been dealt with at some length by three of his hon. Friends and he would, therefore, leave the matter there. I should like to consider the arguments of those three hon. Members.

The first was the Chief Secretary's hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), who said that if food prices were reduced below Common Market prices it would create a demand by other countries for our food and thus reduce our supplies. We do not export home-produced food, and in any event the hon. Member was talking about reduced food prices, whereas I was talking about keeping prices steady, and so his whole argument went by the board.

The second of the three hon. Members was the hon. Lady the Member for Melton (Miss Pike), the only lady in the Committee. Her argument was so muddled that I will not bore the House by dealing with it.

The third was the hon. Member for Chertsey (Mr. Grylls). He was misreported by the OFFICIAL REPORT. He said that each 1 per cent. subsidy on food would cost £70 million, not £7 million as the OFFICIAL REPORT stated. If we are to believe the Government—and many of my hon. Friends would say that we cannot believe them because they are wrong so often—on the argument of the present Minister of Agriculture that food prices should not increase by more than 2 to 2½ per cent. per year, the maximum cost of steady food prices by food subsidies would be between £140 million and £200 million. In order to make the argument, several hon. Members suggested figures of about £1,000 million, but on the Government's own reckoning the figure would be between £140 million and £200 million, and those are not impossible figures when it comes to steadying food prices.

How should it be done? The principal feature would be to concentrate on the main foods, the meats, the cereals, the milk products and probably sugar, although judging by reports in dental journals, perhaps we ought to make sugar dearer because of its effects on teeth, particularly the teeth of children.

The first thing to do would be to freeze retail prices. I see that a Member from Northern Ireland, the hon. Member for Londonderry (Mr. Chichester-Clark), is present; I would make a deal with the Irish about their cattle supplies to us. I would stop all exports of beef on the hoof or on the hook, and my deal with Ireland would be that the Irish would not take a short-term advantage of the situation and would keep their meat exports to us steady. This would be essential, but it would all be for only the short term.

Any Minister of Agriculture knows the world prices of foods, and the import price of food controls the home price. I would immediately tell importers that any price rises occurring the day after retail prices were controlled would be met by subsidies. The system could be easily checked, for there are only about a dozen firms which may be regarded as the principal importers of the main foods.

I see the hon. Member for Norfolk, South-West (Mr. Hawkins) suggesting that he disagrees. As he is a Whip, I do not know whether he will be allowed to state his views. I am not saying that such a system would be easy, and nobody suggests that it would, but it is the Government's job to find ways to do these things, and if they can be persuaded that action is necessary, and they should be persuaded from what I have said and from their experience of the past two and a half years, they should find ways to overcome the difficulties.

I do not wish to labour the point or to go into too many details, but the system is perfectly possible if the Government have the will. This is the one move that would make a tremendous difference to everybody, for the one price rise about which we all hear complaints in our constituencies is a rise in food prices. I am not suggesting that it can be reduced but it can he steadied. It is the one thing that would help to keep down the increasing demands for more wages. We know that there will be a lot of rough justice as a result of the Counter-Inflation Bill and that it will possibly prove difficult with some of the luxury and manufactured foods. If we take the main foods that I have mentioned this could be done.

I know that a lot of hon. Members raise the bogy of rationing and the black market. Basically there is no scarcity of food in the developed world; it is only a question of seeing that the price does not rise. There should be no question of rationing at the retail end. There may be some unfairness here and there.

I cannot be satisfied with the reply I received in Committee from the Chief Secretary, which is why I have raised this matter tonight.

7.32 p.m.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

Listening to the debate I began to wonder whether we are not all deceiving ourselves and trying to pretend that we can opt out when world prices rise against us. There are two things I want to deal with in the code affecting legal control over pay, prices and profits. The first thing to be said about the code is that it should be practical and should not turn large numbers of people into petty law dodgers —that is, it must work. Secondly, it must not undermine national prosperity in the longer term.

I turn now to wage control. I have two practical questions to put to the Minister. I represent the town of Basingstoke, which is an expanded town taking London overspill. It is not unique in this. About 30 towns spread around the southern half of England are doing the same thing. What happens is that a firm moves from London to an expanded town, bringing about half of its labour force with it and paying London rates. It then proceeds to recruit locally the balance of the labour force it needs. What will happen in future? Such a firm will poach labour from an existing employer, who will be forbidden by the code to give rises to employees to retain them. When that new firm has recruited its labour force other firms in the area will be desperately short. They will have to pay the higher rate of pay, needed to obtain new staff, only to that new staff. What happens to existing staff? I am sure that in such a situation the existing staff will simply melt away; but the employer needs to keep the organisation intact.

Secondly, there is the question of civil servants and others whose pensions are related to their last working salary. It would be iniquitous if these people could not have an assurance that the whole of their standard of living in retirement would not be depressed because of phase 2 and a temporary freeze on what would have been a natural increase in their salary. I know that all hon. Members feel strongly about this, and I believe that the House is entitled to a copper-bottomed assurance that something will be done to protect such people.

I note that phase 2 should come to an end in November. It is important to bear in mind that semi-official bodies generally work on precedents when starting on the next phase of anything. I hope they take into account comments of the House on what is built into the previous phase.

There is a central fallacy in the Government's acceptance of the idea that we can equate profit control with wage control. Profit is the spur by which employers are urged on to greater effort. The real equivalent on the wages side is not wage control but control of piecework rates. If we were to tell people on piecework that they could not earn more than so many pounds a week, when they reached that sum they would simply stop working. In effect, that is the sort of brake which the Government are putting on the employers' incentive. There is a direct correlation here, but not the one which the Government have chosen. The trouble with this Green Paper is that we are removing the motive—the power—behind the private enterprise system. The code says that profits must be stuck at the best two of the last five years. This assumes an ability by industry to absorb cost increases on a considerable scale.

Is the rate of profit at which industry is to be stuck sufficient? There is a real danger that we will have a cycle of depression. It is fascinating to watch this. First, there is control of prices, then inadequate profits, leading to low investment, stagnation and unemployment. Then the Government intervene with subventions—usually the wrong sort in the wrong place at the wrong time—and then we hear claims that the free enterprise system is not working. Having stoked up the pressure in the boiler the Government sit on the lid and apply a policy of price and profit control. Then we are back on the same cycle of inadequate profit leading to low investment, leading to stagnation.

We should be asking whether, in passing this code in its present form, we are not laying the foundations for an exact repetition of the conditions which we have gone through in the last three or four years.

Is the frozen profit limit sufficient? If we look at the company sector of the Blue Book of National Incomes we find that in 1955—taking net trading profits before tax and payment of interest on debentures and loans as a proportion of net capital stock at current replacement cost—the figure was 17·2 per cent. In 1960 it had fallen to 15·7 per cent. It went on slowly down. In 1965 it was 12·5 per cent. Then we had the Labour Government's introduction of price control and all that went with it. We see from there an acceleration in the fall in the level of profits. It went down rapidly from 12·5 per cent. in 1965 to 6·7 per cent. in 1970. There we are, already on my cycle of depressing—the rapid fall in the level of profitability in industry and the decline in the incentive to invest which followed from the introduction of price controls. I see a dangerous and serious prospect of the same thing happening again.

Let us consider the figures, taken apart, and not for industry as a whole, for return on capital, taking depreciation into account. When a person buys a ship or sawmill, or whatever, he has to put aside enough money over the life of that sawmill to buy another—at what it cost not five years before but when the existing one is worn out. Otherwise he will not have enough money to stay in business. Today's edition of the magazine Accountancy contains detailed figures dealing with the effect of discounting for inflation on replacement costs. Looked at this way we see that in the electrical industry manufacturers are making losses. The same is true in shipping. Motor profits are overstated by 71 per cent. while textile profits are overstated by 65 per cent. Profits in heavy engineering are overstated by 61 per cent. and in general engineering by 59 per cent. This code takes this present level of depressed profits and says to industry, "This is the basis on which you may not improve during the next period under phase 2". We are starting from a level so depressingly low as to have caused the lack of investment and unemployment which has bedevilled the Government since they took office. With the cost of borrowing at 12 per cent. and the average return in industry as low as it is at present, it is not surprising that the situation is depressed.

I notice from paragraph 46 of the Green Paper that if the net profit before tax has fallen below 5 per cent. one can use 5 per cent. as a base figure. But that means that the after-tax profit will be 21 per cent. It is the economics of the madhouse to suggest that industry should only be allowed to use a 22 per cent. net return on its investment as evidence of its being a special case, and that above that figure firms must lump it. It is so ludicrously low that it gives me cause to wonder what civil servant or Minister could have assumed that that was vaguely economic.

I turn to the problem of the smaller businesses, which have to obtain their working capital and investment from the after-tax profit retained in the business. They cannot go to the Stock Exchange and borrow more money. Under the new corporation tax system which was introduced in the last Budget, their tax rises to 50 per cent. Therefore, these firms need to keep every penny they can get in profit to maintain themselves in business. If the trading level of a small business remains the same, the proprietor requires more working capital, because the cost of the raw material he is handling will have increased since last year, as will the work in progress, the value of stock, and the amount of money which his customers owe him will also have increased. Where is this extra working capital to come from? The Government expect the economy not to stand still but to grow at 5 per cent. The proprietor of a small business must have not only sufficient working capital to cover those increased costs but 5 per cent. in addition.

Paragraph 24 of the Green Paper states that: Prices may not be increased in anticipation of future cost increases". I wish to put a specific question, to which I should like an answer: what does a company which normally sells at a 20 per cent. profit do when its replacement cost is more than 20 per cent. higher? Does it buy from itself? From where does it get the money to finance the next purchase? Unless I receive an answer to that question I do not see how I can possibly support the code.

Photo of Mr Idris Owen Mr Idris Owen , Stockport North

My hon. Friend may be interested to know that that problem is highlighted in land acquisition. One may acquire land at a given figure—say, £10,000 an acre—but before it has been developed it may have escalated in value to £30,000 and not sufficient money is being clawed back in profit to buy the new parcel of land.

Photo of Mr David Mitchell Mr David Mitchell , Basingstoke

I am grateful to my hon. Friend.

On Sunday I took my family to a hotel which I had not visited for a number of years. There was not much choice on the menu, but I remembered it as a nice, bright, cheerful place. On Sunday the carpets were worn and the curtains were shabby. There was a shortage of staff. Prices were reasonable, but the standard was poor and unattractive. As I came away, I realised that here phase 2 had been voluntarily applied by the proprietor of the establishment for the last three years.

7.45 p.m.

Photo of Mr Peter Trew Mr Peter Trew , Dartford

I listened with great interest to my hon. Friend the Member for Basingstoke (Mr. David Mitchell). I shall be echoing a great deal of what he said.

The Counter-Inflation Bill, to which we gave a Third Reading last week, provides the machinery for the Government's counter-inflationary policy; but it is purely machinery and it requires a policy to implement it. That policy is contained in the Price and Pay Code. It is, therefore, both right and appropriate that the House should have the opportunity to debate the code.

Although we are now debating a code, or draft code, for phase 2, I believe, like my hon. Friend the Member for Basingstoke, that because phase 2 is of short duration and will be over by the autumn much that is in the code will inevitably form the basis of the policy in phase 3. There are two concepts in the code which require a great deal more thought before they form the basis for the Government's prices and incomes policy; namely, the concepts of the treatment of productivity and the control of profits.

Paragraph 19 of the code requires that firms should absorb 50 per cent. of the allowable cost increases arising from pay increases. My right hon. and learned Friend the Minister for Trade and Consumer Affairs described that as a simple provision. I agree with him. But it is too simple by half. It is a provision which is not particularly onerous for a firm which is capital-intensive, but it could well be very onerous for a firm which is labour-intensive. It discriminates against the firm which enjoys slow growth and in favour of the firm which has a high rate of growth.

Normally any measure which favours capital investment or the employment of capital and a high rate of growth is to be welcomed, but if it is too arbitrary in its application, as I believe this measure is, the result in the short term, unless it is applied flexibly and with a certain amount of discrimination, could be bankruptcy or the precipitate laying off of labour in labour-intensive firms.

There is a great deal of merit in the American rule on productivity which establishes productivity norms for individual industries on the basis that allowable cost increases are reduced in proportion to the productivity norm for the industry and which allows the firm to plough back those profits arising from productivity in excess of the norm for the industry. In this country we do not have the necessary information on productivity increases for individual industries, but, as a matter of course, we collect a great deal of information about industry. The information about productivity is so basic that the Government should begin to collect it with a view to making use of it. if not in phase 2, then at some future time.

I turn to the question of the control of profits. In Committee I drew attention to the fact that, according to whether one took page 5 or page 13 of the White Paper, two interpretations of what the Government had in mind for profit control were possible. I sought to ascertain from my hon. Friend the Chief Secretary which one was right. On the one hand, it was possible to take the view that what the Government had in mind was simply a back-up power for price increases: in other words, when a firm sought to increase prices one of the yardsticks by which one would test a price increase was the effect which it had on profits. The other interpretation was that the Government intended to control profits per se without necessarily any reference to prices.

In Standing Committee my hon. Friend replied: The answer is that the restrictions on net trading profits are intended as a back-up to the allowable cost regime for manufacturing enterprises and for the gross percentage margin control for distributors."—[OFFICIAL REPORT, Standing Committee H, 13th February 1973: c. 601.] That was quite clear, or so I thought, but I wonder whether my hon. Friend and I are on the same wavelength, because in paragraph 147 of the consultative document the requirements for reporting, it seems to me, favour a different interpretation. It requires companies to report their costs, prices and sales as well as profits. This implies that the Government have in mind control of profits in its own right. I hope very much that my right hon. Friend, when he winds up the debate tonight, will clarify the Government's intentions on this. Are the measures for profit control simply intended as a backup to prices control, or do the Government intend to control profits as a separate exercise in its own right?

If the latter is the case, if the Government are seeking overall control of profits. there are two questions which spring to mind. How will they oblige firms to reduce prices in a way which will reduce profits if they are above the prescribed limits? Where a firm is pursuing some simple manufacturing activity—say, manufacturing baked beans—and that is its sole activity, one can very easily relate the prices of the beans to the profits of the enterprise, but if a firm is carrying out diverse activities, some manufacturing and some activities in the services sector, precisely how is the Price Commission to identify which activity is contributing to which part of the profit, and what action will it require of the firm?

The other question one is bound to ask is on the effect of overall profit control on investment. My hon. Friend the Member for Basingstoke spoke eloquently about this. In paragraph 49, quite rightly, the consultative document specifies that where the Price Commission is satisfied that the profit limits would impede investment it can make an exception, but it goes on to say that an enterprise must satisfy the commission that investment will take place. The question I would put to my right hon. Friend is: what is the time scale of that requirement? Must the commission be satisfied that the investment is about to take place immediately, or will it be sufficient for the commission to be satisfied that the investment will take place within some span of years?

It is perfectly legitimate for a company to set aside profits year by year to make provision for very necessary investment in the future. Today's profits are tomorrow's capital investment, and it would be a great pity if the British people found themselves compelled by the Government, with the best intentions, to eat the seed corn. I am sure that that is not the intention, but I believe that that will be the effect unless a great deal more thought is given to the concept of how to treat these two requirements of productivity increase and profit control.

7.53 p.m.

Photo of Mr Edward Fletcher Mr Edward Fletcher , Darlington

It is as well to establish straight away the background against which we are discussing this prices code. Today the Trades Union Congress is meeting, and, although it is too early to know the outcome of the conference, it is certain that millions of people will take a decision to oppose this policy and, perhaps, take militant action.

In addition to that, this week 200,000 hospital workers are engaged in industrial action against the policy of the Government. We witnessed last week a day's token stoppage of almost 250,000 civil servants, the first stoppage in the history of the Civil Service in this country. A meeting is also being held today by ASLEF, the railwaymen's union, to decide whether to have another token strike by rail drivers next Thursday. Ford workers, meeting yesterday, decided to put a ban on overtime, and they may take part in militant action. Within the past few weeks London teachers have been striking, and hundreds of thousands of schoolchildren have been unable to attend school. The miners are in the queue demanding in excess of what the code is offering for wages increases.

Of course, we still have with us the gas dispute. The minimum wage for a labourer employed in the gas industry is £19·10. In a situation where many of them are living in council houses and have already had a £1 rent increase in October and possibly will have to pay another increase in April, where possibly they will have to pay VAT on children's clothing after 1st April, and where they have been faced with increases in the cost of food now running at the rate of 12 per cent. a year, they have been offered a miserable pittance of £2·40 to meet these increased charges.

This is the background to the debate we are having on the code. One of the things which have struck me is the fact that this must be one of the unhappiest periods the Government have had since they came to office, because no one on the other side has had a good word to say about this piece of legislation or this code. They are looking at it with a great deal of apprehension. Some are concerned that the Government made pledges in the past that they would not in any circumstances bring in a statutory policy on prices and incomes. Others are concerned with the interference which they think this policy will have on profits and profit margins. So naturally, they are antagonistic. Others take the view that this policy is the road to Socialism, and that, if this legislation remains on the statute book, in three years' time a determined Labour Government might use it really to control prices; they are very much afraid of that prospect.

So for many, various reasons hon. Members opposite will not go gladly into the Lobby in support of the code. I personally opposed my own Government's prices and incomes policy, and I did it in the Lobby. I hope that some hon. Gentlemen opposite will have the courage of the Prime Minister's previous convictions and tell the Government what they are going to do about their prices and incomes policy. Through the long debates in Committee and in this Chamber I have seen no single Member on the Government side rise with enthusiasm to acclaim this policy.

Why is it that millions of people are in revolt against this policy? It is because they have not the slightest confidence that the Government intend to hold down either prices or profits. That is one reason. The second reason is that they know that this Government are responsible for inflation. This Government have deliberately set out to increase prices, and, having done that, they have arrived at a situation where they are now asking people to help curb those prices.

I quote from a speech made by the Leader of the House in 1966, before he was a Minister: The time has come when we should have higher prices for food and no subsidies for either the agricultural or the fishing industries. If we did that we would get competition working in both industries and the nation would get better value because the nation has been mollycoddled for too long by receiving cheap food."—[OFFICIAL REPORT, 29th July 1966; Vol. 732, c. 2127.] That was the view in 1966 of the right hon. Gentleman who is now Leader of the House.

When the Conservative Government came to power they proceeded to translate that into policy. They decided to equate food prices in this country with food prices in Europe, so they let retailers' profits rip. They abolished the Consumer Council, they withdrew agricultural subsidies and they introduced the Housing Finance Act, which puts a tremendous imposition on millions of council house tenants. They did nothing about the rocketing prices of land and houses. They let the economy rip and, quite deliberately, set inflation in train. Having arrived at a situation in which they are getting into increasing difficulties with the balance of payments, they are ask- ing the nation to tighten their belts and come to their rescue to get them out of the inflationary policy which they deliberately instigated.

We must ask ourselves how effective the code will be. The trade unions have the utmost suspicion of it. They know that the profit margins will not be policed. They know that prices cannot be overlooked by 700 civil servants—at a cost of £3 million. Trade unionists are not alone in this opinion. Many financiers and industrialists believe that they will get through the net of the code. For example, the City Editor of the Daily Mail says that the Government will have to be on their toes if they are to enforce the profit margin of phase 2. He then seems to suggest that they cannot, because he goes on to say: As it was probably only inserted in an attempt to buy the support of the unions—an attempt which seems to have failed for the most part—I do not suppose many members of the Government will weep much if ways are found to avoid the limitations on profits. Here is a responsible man, an adviser to City financiers, telling the City of London that there is no need to bother too much about the code because the Government will not weep any tears if there is evasion of the profit limitations. It seems to trade unionists and financiers that the code can be broken. No doubt many trade organisations and manufacturers' associations are busily getting out the duplicator and sending circulars to their members explaining how to get round the Government's incomes policy and how to evade Government intervention on profits and prices. I have no doubt that the clever accountants in the City are devising means to get behind the code. The code is not even essentially a guide to a prices and incomes policy. All it is is a wage restriction policy. It is aimed primarily at working people and in the main the lower-paid working people.

I have already instanced the position of gas workers whose minimum wage is £19·10. That can be made into a living wage only by excessive overtime. Hospital and auxiliary workers, too, are in the lower wage bracket. These lower-paid workers realise that if they are to achieve a decent standard of existence they have to fight not their employers but the Government. The Government are responsible for the confrontation with the trade union movement, not the employers. In the old days the employees fought the employers, but now the employees fight the Government. Industrial struggles, because of the Government's policy, are becoming political struggles.

Working people are not morons. They know that prices are bound to increase, as they have already increased since 6th November. According to the Daily Telegraph public opinion poll a few days ago, only 23 per cent. of the people interviewed thought that the prices and incomes policy would be successful. There is widespread cynicism that the Government will do nothing about controlling prices and profits.

If the Government had not adopted such an inflexible attitude, it might have been possible for some advance to be made, and for negotiations to take place in special cases, as was provided for in the Labour Government's prices and incomes policy. The Government are asking for trouble in taking this inflexible stand, and they will get trouble.

I conclude by saying, as I said about the Labour Government's prices and incomes policy, that I do not think that it can succeed. I hope that, before it is too late, the Government will reject their inflexible attitude towards trade union demands. I hope that they will be prepared to negotiate with the Trades Union Congress and make concessions by withdrawing the Housing Finance Act and making possible increases higher than the norm. If the Government will abandon their idea of confrontation and be prepared to talk realistically with the trade union movement they will find a ready response.

8.8 p.m.

Photo of Mr Piers Dixon Mr Piers Dixon , Truro

Hon. Gentlemen opposite have complained that few Government back benchers are behind the code. I am certainly very much in favour of the code, and many of my colleagues take the same view. However, I recognise, as the hon. Member for Darlington (Mr. Ted Fletcher) implied, that there is one major gap in the code—the control of banking profits. There is genuine concern in the City about this matter.

On Tuesday of last week the hon. Member for Dudley (Dr. Gilbert) tabled an amendment seeking to limit the interest which could be charged and paid. The hon. Gentleman slightly over-egged the pudding in saying that last year the people who paid interest to the bankers had had to pay about £200 million more as the result of rising interest rates. That £200 million does not go into the banks' pockets. A large part of it returns to the public. Lenders and borrowers are the same sort of people. The people who put their money on deposit with banks and building societies are not always rich—they are probably older than the people who borrow the money, and many are middle-aged. The lenders of money are not the sinister institutions which have been described; they are often pension funds which distribute benefits to the working people.

The £100 million increase in banking profits last year mentioned by the hon. Member for Dudley does not go into the coffers of the banks, because 40 per cent. of any profits made by a bank goes back to the taxpayer. If some of the profits are paid out in dividends the taxpayer receives a further proportion. The shareholders in banks are often people who are not very well off—many are middle-aged and many are pension funds and similar institutions.

I believe that there are strong arguments at present pointing to the fact that bank margins should in some sense be controlled. On the Report stage of the Counter-Inflation Bill the hon. Member for Dudley suggested that both lending and borrowing rates could be controlled. I do not regard that as a realistic suggestion, and I was glad to vote against the hon. Gentleman's amendment on that occasion, but I believe that it should be possible to control the gap between the rate at which banks borrow money and that at which they lend it.

The gross margin between the two rates is not entirely satisfactory because it would induce banks to lend to those customers who were more economic to service. I should like to see incorporated in the code some sort of net margin restriction related to the difference between what the banks genuinely receive on money they lend, after they have paid there expenses, and the price which they have to pay for that money. This could be done merely by incorporating that feature into the code, or alternatively it could be handled outside the code by the Government's imposing some system of special deposits on the banks at penal rates which would have the same effect and would reduce bank profits.

There is also an argument for some sort of qualitative control. I instinctively dislike qualitative controls, but I believe that in the present financial situation some sort of qualitative control of bank lending should be enforced. Not only Labour Members have been disturbed by the excessive profits made out of property speculation and on the Stock Exchange—at least, until a few months ago. I believe that the banks should be instructed to lend to one customer as against another, or possibly that there should be some system of special deposits at penal rates related to the loans made by banks for purposes such as property speculation or share speculation.

I conclude on one sad note, in terms of the code. We all know that overtime is a fiddle. It is a way by which employers are able to pay their employees extra money in a roundabout way. It is clear that by paragraph 93 of the code that sort of situation will continue to apply. Overtime is a fiddle, and under the code it will continue to be a fiddle.

However, there are companies which have dispensed with overtime and which have agreed to pay a proper wage for a proper day's work. Many of these companies—and this includes English China Clays, in my constituency—have not paid overtime, and the unions have been moderate in this respect. As a result, the wages which have been obtained by workers in many of these industries have lagged behind not only the national average but the cost of living. I should like to see some provision within the code to give recognition to companies which do not use the overtime fiddle as a way of rewarding their employees. Special concessions should be given to those employees and employers in companies which have been restrained in the past and wish to be restrained in the future, but which find themselves caught unfairly by the provisions of the code.

8.15 p.m.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

I should like to address myself concisely and crisply to five issues which I wish to put to the Minister for Trade and Consumer Affairs. Has the right hon. and learned Gentleman now, a fortnight afterwards, any reflections to make on the comment the Chief Secretary to the Treasury made in Committee when he was asked about the salaries of the chairmen of the Pay Board and the Price Commission. The Chief Secretary told the Committee that we should not concern ourselves unduly with such details. Do the Government still regard this as a mere detail? Is it not a very sensitive subject, and was it not foreseeable that there would be some kind of resentment when the reward to be offered to Sir Arthur Cockfield—though I make no criticism of the gentleman personally—was splashed all over the Press?

Was it wise that the reward to the man who is seen in the public eye as having to administer the Government's policy should involve such a very high increase in terms of pounds per week? The Government should make some comment on the subject and should give this information to members of the Committee who raised the subject before the event. Therefore, this is not purely a matter of hindsight.

Secondly, I wish to ask the Minister for Trade and Consumer Affairs what serious estimate has now been made of the staff requirement of the Price Commission and the Pay Board. No doubt the right hon. and learned Gentleman will have read some of the argument which took place on the counter-inflation legislation upstairs in Committee. Some of us would like to express our complete disbelief that this kind of policy can be operated by 700 people. We heard today how they will have to deal with modified pay increases and allowable costs, and that there will be a special panel to deal with administration and dividend control, which alone is a difficult enough subject. I believe that if the job is to be done it cannot be done by 700 people.

Do we know enough details about the recruitment of people who will carry out the bulk of the work? Will the Minister, in reply, give us some kind of progress report on the sheer administration of the Price Commission and the Pay Board? Do I have the Minister's assurance that this will be done? I hope that I can have the Minister's attention. Will this be done in the concluding speech, and will some progress report be given to the House about recruitment of the board and the commission?

Thirdly, I should like to ask about the state of the borrowing powers as used by the Treasury. Is it a fact that if the Gas Board is now losing about £1 million a day, this is being met out of the national borrowing requirement? If it is, many hon. Members on both sides of the House will know how inflationary such a move is. But I should like the fact established. Are the present losses of the gas boards being met out of borrowing requirement and, if so, what is the nature of the Treasury authorisation?

Fourthly, other hon. Members have referred to the Civil Service. Anyone representing an area where Department of Health and Social Security officers went on strike for a day knows very well what hardship and difficulty was caused. I am glad to see that the Secretary of State for Social Services is present. I hope that he will insert into the concluding speech some kind of Government statement on their attitude to and discussions with the Civil Service on Priestley. Will assurances be given on Priestley, to alleviate the very real complaints of civil servants? Perhaps the right hon. Gentleman would care to interrupt and tell the House about the state of discussions—

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

I am sorry to see that reaction to my suggestion. It means that I must reiterate that many hon. Members have seen the difficulty and hardship caused to people, and their resentment, perhaps ill placed, against the Department's staff. It is very unsatisfactory that certain clear assurances about the future and on Priestley cannot be given. It is breaking an agreement which, admittedly, was dented by the Labour Government. But it is going much further than any previous Government have done. The Secretary of State for Social Services is normally most courteous in these matters. It is very unsatisfactory that he will not make some statement about the present state of negotiations.

Fifthly—and I am glad that the Secretary of State for Social Services is here —[Interruption.] I noticed that the right hon. Gentleman is leaving us. He breezes into the debate, for what purpose one does not know, and leaves us just as quickly. That is unfortunate, because I want now to refer to the hospital situation.

Over the weekend I spent a good deal of time, at the invitation of Jim Strachan and Tony Martin of the National Union of Public Employees, helping to negotiate on the situation at Bangour hospital, which is one of the largest in central Scotland. In the words of the consultant, Dr. Gunn, the situation "is now critical". Within 48 hours it may be a matter of life and death. In a general hospital the position is bad enough. Here—and it is a situation which is repeated all over the country—soiled linen is piling up in corridors and there is a very real risk of infection. In addition, an intolerable burden is being put on the nursing staff and on those members of the ancillary staff who are still at work.

One has to ask the Government what their intentions are. Are they that this crisis should be ridden out? Do they intend to keep a stiff upper lip and plough on? If that is the situation, it is a matter which, not only in my lay view but in the view of the consultant surgeons responsible for the safety of their patients, it becomes a matter of life and death. In the Scottish Press we are told there are cancer patients who have been admitted rather later than they would have been otherwise and that it is not scaremongering to suggest that the situation is creating a real health hazard.

It may be that when we come to a situation where perhaps one or two deaths result, possibly attributed to the industrial situation that has arisen, the union will get the backlash of it. I want to go on record as saying that this would be a very unfair situation. These are not militant trade unionists. They are people who have not gone on strike for half a century.

In this connection I pick up a comment made by the Minister of Trade and Consumer Affairs. In the course of his speech the right hon. and learned Gentleman said that his policy was designed to help the moderates. I put it to him that a policy of £1 plus 4 per cent. is not a policy which is designed to help the moderates at the lower end of the pay scale, whatever else it is. There is all the difference in the world between 4 per cent. of less than £20 and 4 per cent. of a substantially larger wage or salary packet.

I wish that the right hon. and learned Gentleman would take the opportunity to answer this one point. In reply to an intervention of mine he said—twice, as I understood it—that this was a policy tilted towards the lower-paid. I invite the right hon. and learned Gentleman to say on what basis it is seriously argued by a member of the Cabinet that this policy in the code is tilted towards the lower-paid. Is it seriously contended? Have I misquoted the right hon. and learned Gentleman—

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

indicated dissent.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

I assume the right hon. and learned Gentleman's nod to mean that I noted his words accurately. He said that the policy was tilted in favour of the lower-paid. I am afraid that £1 plus 4 per cent. by no stretch of the imagination is tilted in favour of the lower-paid.

Although the Opposition might argue that our party would not have started from this position in the first place, those of us who make speeches of this kind have a certain obligation to say constructively what we would do. I speak with no authority other than that of a back-bench Member. But after a great deal of discussion, not least with some of the leaders of the National Union of Public Employees who are involved, I should have thought that it was necessary, in the next two or three days, to give some kind of sign that the Pay Board and the Government are willing to have second thoughts on this issue.

Let us be realistic. It might be very difficult to go higher than the 4 per cent. In the present situation I understand the Government's difficulty. But I should have thought that it was not necessary to be nearly as rigid on the £1 flat-rate element. Unless our hospitals are to be brought to their knees, let us say that an offer of £3·50, or £4 plus the 4 per cent., is a realistic offer to those earning less than £20 a week. This degree of flexibility might help in a situation which is rapidly becoming a crisis.

I have been speaking in terms of the crisis in operations at our general hospitals. I wish to make special mention of the village mental hospital in Bangour. There are dozens of other mental hospitals in the country in the same situation. It is all very well to tell some patients in a general hospital that they can be looked after at home and that, although there may be great difficulties, expectant mothers might have their babies at home and not in the maternity unit. A risk may be involved, but it can be done. What cannot be done is to tell long-term mental patients, "There is no longer any possibility of caring for you." Those suffering from double incontinence, which is often the case, either will not be taken home by their relatives or, more likely, do not have relatives who even visit them, let alone take them home.

Therefore, as of tonight, there is a major urgent crisis in many of our long-stay mental hospitals. What is to be done about it? Something must be done. This situation cannot be ridden out.

There must be flexibility. I suggest that that flexibility should be exercised towards certain categories of the lowest-paid workers in our society, those who are on strike for the first time for half a century, those who do the kind of dirty jobs that most of us certainly would not like to do and perhaps few of us have experience of doing other than in the emergency of the 'flu epidemic. Let us be flexible. Let us do something quickly. I can offer at least one possible constructive suggestion which ought to be within the Government's power.

8.30 p.m.

Photo of Mr Peter Rees Mr Peter Rees , Dover

I hope that the hon. Member for West Lothian (Mr. Dalyell) will forgive me if I do not follow him in detail. He addressed a series of detailed questions to the Government which I am in no position to answer.

The hon. Gentleman ended by saying that we were in an urgent crisis. So we are. That is why I support the code, although I have certain criticisms to make of it.

The hon. Gentleman touched on the intention or, as I prefer to describe it, the objective of this legislation. The objective is to buy time, but at a certain cost. The greater the time, the greater the cost. The longer the code runs, the greater the interference with and even damage to the market mechanism. This is a recurring theme in our political history. It is many years since I looked at the Statute of Labourers, and I wonder if that legislation was as severe as anything we have to endure today. This is indeed the most strongly interventionist legislation we have had to endure for many years, as the right hon. Member for Bristol, South-East (Mr. Benn) observed.

It must be tested by two yardsticks. First, does it ensure the minimum of disruption? Secondly, does it ensure equality of sacrifice?

I should like to consider the two main sectors affected, business and labour, to test the code as it applies to them by those yardsticks.

Regarding business, I find the following points impractical, unrealistic and objectionable. First, it is true that a company can test its profit margin by reference to the two most favourable years in the five preceding years. However, I should point out that these five preceding years will normally include the CBI initiative, the freeze, and the long period of squeeze under the Labour Government—they can hardly be regarded as five typical years—and there has been no adjustment for the fall in the value of money.

Secondly, the time factor is unrealistic for notification of price increases. Few companies can say "Two months from now we will increase our prices". It is unrealistic to suggest that the Price Commission need not reply for 42 days. This may be all right for the Civil Service, but it will not do for business.

Next I come to the proposal that a business must absorb half the allowable costs. It is unrealistic in many cases. What if a company cannot raise fresh capital and has to rely on bank overdrafts? Bank interest is an allowable cost, but such a company can take account of only half of that interest.

The code by implication proposes a restructuring of British industry. All right, let us restructure British industry, but I do not think that this is either the right way or the right moment to do it.

It sounds fair that if costs are reduced, fortuitously or by design, prices must be reduced. But why should we make the assumption which the code appears to make that costs will remain at that reduced level? There are bound to be fluctuations. I suggest that this is an unrealistic and rigid approach. Again allowable costs make no provision for the depreciation of capital equipment. One of the central points of the Government's economic policy, rightly in my view, is to encourage business to re-equip. It seems to me that they are taking away with one hand what they have given with the other. Unless a company can obtain full relief for the investment that it has made, this policy must go out of the window.

I come next to the question of reporting. I heard the Minister say that this system should be self-monitoring; but that is not the whole story. Companies have to report and keep records. As a professional man, I am concerned. I notice that any firm engaged in providing professional services and having a turnover of £250,000 a year or more may have to report and will have to keep detailed records. This is likely to put a grave burden on such a firm even if it is not called upon to make any formal reports.

When I balance all those factors against the burden on labour, notwithstanding all the eloquent speeches from the other side of the House I remain unimpressed. There are no comparable burdens on organised or unorganised labour. There is no provision that they should report, and no yardsticks of comparable rigidity.

Indeed, on a minor point, I notice that a trade union official acting in the course of his authority cannot be brought to book for any infringement of a specific order made by either of the agencies, while a director or manager of a company may expose himself to a fine or imprisonment. When I compare subsections (5) and (6) of Clause 14, I find that the greater burden of the legislation falls once again upon business rather than upon labour. If the burdens are unequal, one is led to ask about the compensating factors.

I appreciate that this is only a Green Paper for discussion. But I suspect that in many cases, unless drastically amended, it will involve a mere prolongation of phase 1 for certain companies which cannot bring themselves within the rather rigid terms laid down. What is the compensating good that we hope to achieve? The code will be tolerable only if the objective is sound, and that leads me to consider phase 3 and the aftermath.

It will not be sufficient merely to return to a free market. Events today at the TUC extraordinary general meeting have emphasised that in the prevailing climate a voluntary agreement is moonshine, and it underlines—if it were necessary to underline it—the hypocrisy of the entente cordiale which we have been told has been negotiated between the Labour Party and the TUC.

A voluntary agreement which seeks to limit the exercise by the TUC of its present strength is unrealistic. Between organised labour and management the laws of supply and demand no longer operate. Had they been in operation there would have been a perceptible slackening of wage demands during the period when there were 1 million unemployed. The truth is that the unions are in a position to inflict unacceptable damage on employers and, indeed, on the economy as a whole.

The realisation that they, too, are members of the economy and will suffer has not sunk home, and the only answer to the Jimmy Reids of this world is the liquidation of the companies that employ them. The Government must address themselves to the problem of how to ensure that when phase 2 and phase 3 are over an employer is not from the start at a hopeless disadvantage vis-à-vis the unions, so that there is a true balance in future negotiations.

This is neither the time nor the place to investigate this crucial subject, but if a solution cannot be found, if we cannot adjust this balance, the complexities and hardships of this legislation will be unbearable. We shall find that we have purchased time to no purpose, and at an unacceptable cost.

8.39 p.m.

Photo of Mr John Golding Mr John Golding , Newcastle-under-Lyme

The contribution of the hon. and learned Member for Dover (Mr. Peter Rees) highlights the nature of the present economic policy. In the words of the old song, It's the rich what gets the gravy,It's the poor what gets the blame. There is no doubt that the financial benefits which the Budget will offer tomorrow to the rich, totalling £300 million, stand in stark contrast to the treatment that the very lowly-paid get under this policy.

I have been corresponding with the Minister of State, Department of Employment, about Remploy workers. It is sad to see that merit awards to those workers have been frozen during the present freeze. The Minister cannot say clearly whether in phase 2 these awards will be paid. I should like the Minister who is to wind up the debate to tell me whether they will be paid.

Certainly, people have been frightened of inflation, but increasingly they are becoming more frightened of the wages freeze, because their cost of living is rising starkly. It is going up because of increases in rents. How the Government expect any trade union official in my constituency, where rents in the rural area are to rise savagely in April, to plead for wage restraint I do not know. Rates are going up sharply, and, most important of all, so are food prices. It is extraordinary that the unions get the blame for a situation in which almost every increase in prices has been brought about by the Government themselves.

On several occasions in the last two years I have accused the Government of undermining our arbitration procedures. They should be trying to improve arbitration and conciliation procedures rather than undermine them. What is the Government's attitude to be towards arbitration under the Green Paper? This is not made clear. Are the arbitration tribunals to act as they would have acted had there been no policy and make awards on the basis of the evidence from both parties, or are they to be bound by the Government's policy?

It would be far better were the Government to allow arbitration to continue quite freely and do their own dirty work by then stopping the arbitration awards. If it is seen in this period that the Government are interfering in arbitration, they will be further undermining a situation which has been made bad by the sacking of Scamp and of Hugh Clegg and by the non-appointment of other arbitrators in the last two years.

Some people in my constituency, members of the Transport and General Workers Union, have been badly treated. They work at Birchenwood Coke and By-Products Ltd. at Kidsgrove. Their situation, which has been brought to the notice of the Department, is that the union was negotiating with the management for a six-point improvement in wages and conditions. They asked for improvements to the value of £75,000, but finally settled, on 16th October last year, for an across-the-board increase of £25,000. Unfortunately, they did not get the details settled until 13th November, but they had settled on the global sum and they had agreed not to press their original claim.

When this was put to the Department in November, the union was advised that the claim was frozen. The union appealed and were again told that the claim was frozen. Moreover, both management and unions were told that not only was this claim frozen and unable to be paid until 28th February, but then the Government's norm of £1 plus 4 per cent. would be applied. It seems rough justice that an agreement already reached in October cannot be implemented.

Much could be said about the unworkability of these proposals. Suffice it to say that, even were they to be implemented, one thing is certain—that the lowest-paid and the weakest in our society will get a very raw deal under this wages policy.

8.45 p.m.

Photo of Mr David Madel Mr David Madel , Bedfordshire South

The hon. Member for Newcastle-under-Lyme (Mr. Golding) said that this debate is another extension of the arguments we have had over the prices and incomes policy during the past 12 to 18 months. The past 10 days have seen a dramatic change in the industrial relations situation, which will make the task of the new Pay Board extremely difficult. What I have to say in mitigation is that the Pay Board will have to wait only another 24 hours, for tomorrow my right hon. Friend the Chancellor of the Exchequer will introduce a Budget which, I hope, will give continuation to our economic growth.

Under the Counter-Inflation Bill, it is provided that the Pay Board and the Price Commission can be amalgamated should it be felt necessary. I hope that this will soon happen, and I hope also that it may be possible for people to give oral as well as written evidence to the Pay Board. The Bill at present refers only to the question of written evidence.

The first problem in the Green Paper comes in paragraphs 83 and 84, dealing with the question of the pay limit. I think that the limit of £1 plus 4 per cent. is bound to cause difficulty in defining what groups of employees are involved. Not every factory has a single union. There may well be inter-union arguments, and people change from time to time from one union to another.

There is another problem to which we must give attention—that of the hourly-rate man and the piece-rate man. The Green Paper indicates that the piece-rate man can earn more by producing more, whereas the hourly-rate man cannot. I wonder, therefore, whether an exception could be made in the case of the hourly-rate worker—for example, whether higher overtime payments could be made for shift working at night, and extra-long shifts, for example. At the moment, these are disallowed. The question of night shifts is a special problem, and I am not sure that we should exclude those who work long shifts at night from higher overtime pay. Such a change would surely help to get rid of difficulties which arise between hourly-paid workers and pieceworkers.

Paragraph 84, dealing with pay settlements, states that settlements reached after 6th November 1972 are to last 12 months. I hope that the Government will be flexible in this case because otherwise it will not be easy for low-paid industries when pay settlements come through. The assumption is that the prices policy will be successful, and we hope that it will be. But there are prices which are beyond our control. For example, the cost of food bought overseas may well go up again, and this will make it difficult for a limit of £1 plus 4 per cent. to last for 12 months in all cases. Thus, under the present system a rise on 1st May 1973 would have to last until 1st May 1974. If commodity prices increase further, this could make the situation more difficult.

There are a couple of other alterations I would like to see made on the question of remuneration. I have already mentioned higher overtime payments which might be allowed for hourly-paid men, but paragraph 109 states: Where a change in a pension scheme has the effect of increasing the pay, net of any pension contribution, of a substantial proportion of the group of employees… the increase will count against the pay limit. There is an overriding need for companies to go on reviewing their pensions policy, and I cannot see that paragraph 109 will be helpful, especially since it is the Government's policy to provide better pensions, which help not only the lower-paid but the community as a whole. We could get into difficulty here, not least because it is not clear what is meant by the words a substantial proportion of the group in paragraph 109.

I would say something more about hours worked. Reduction in the working week below 40 hours has to count against the pay norm. I believe that as from 1973 demand for the 40-hour week to be reduced will increase. Forty hours is a long time to work in a week. We in this country are only just beginning to grasp the effect of length of work on employees, particularly in the assembly line jobs. We should put more emphasis on quality of output per hour; that is much more important than hours worked. I ask the Government to look at that aspect.

Paragraph 99 says that a reduction of one hour in 40 should be treated as equivalent to a 2½ per cent. increase in pay. I wonder how that percentage is arrived at. It is probably an inspired guess.

Related to hours of work is the question of extra holidays above three weeks. We in this country do rather badly on holidays vis-à-vis Europe, and it would greatly help to ameliorate the industrial climate if exceptions could be made there as well as in the working week.

Paragraph 153 refers to pre-notification of pay settlements. It requires that where pay settlements affect 500 employees or more eight weeks' notice is required before the settlement can be implemented. Eight weeks is a long time especially when one knows from the history of industrial relations in a particular industry that the pay negotiations were lengthy and hard fought. Eight weeks for the Pay Board to agree an increase could create difficulty. I believe that a case can be made for halving that period to four weeks.

There is not much time left for me to go into any detail on prices, but paragraph 36 says that a fall in raw material prices or other allowable costs should be fully reflected in price reductions. Here, enforcement will be the difficulty, and there may be difficulty particularly with regard to value added tax. We want the public to put pressure on the Government and manufacturers to make sure that price reductions do occur. The public normally know when prices are to go up, but it is difficult to know whether they have sufficient information to put pressure on companies and the Government to reduce prices when there is a fall in raw material prices.

A recent survey undertaken by the Work Together Campaign showed that a substantial proportion, 70 per cent., of the country feels that the present share-out of wages between all different jobs is unfair. People feel that the way wages are shared is not fair, and unless the board can in the next four or five months get across to the country that it will put these differentials right, it will be in difficulty for stage 3.

8.54 p.m.

Photo of Mr Guy Barnett Mr Guy Barnett , Greenwich

According to paragraph 113 of the code, amongst the forms of payment that must be included within the pay limit laid down in phase 2 is the London allowance. The Minister will probably already know of the deep resentment felt on this score, particularly by teachers. In effect, this limit means that in order that the London teachers may get the kind of allowance they need to alleviate some of their cost of living problems, teachers in the provinces will have to accept a smaller increase. I believe that to be wholly unfair and wrong, because the purpose of the London allowance and of geographical allowances generally is to take account of variations in the cost of living. It is solely a cost of living allowance.

The point is well illustrated by two letters which I received from constituents this morning—one from a teacher, the other from a parent. The teacher writes: I have recently joined the staff of a London comprehensive school. I am impressed by the enthusiasm and idealism so apparent among the staff of the school, but unfortunately that idealism is undermined by material disadvantages for the teacher, especially the difficulty of finding and then affording suitable accommodation. I am therefore depressed by the prospect of my own stay in London being a short one—as it is for many of my colleagues also—due to these disadvantages which are obviously inadequately compensated for by the present London allowance. This teacher tells me that she is planning to get married soon and that, as a result, she will be leaving London.

That is typical of hundreds of letters which hon. Members representing London constituencies have been receiving. But it is interesting to note also that representative of the feeling among parents is the following letter: The best teacher my younger son has had was obliged to resign from the staff of Kidbrooke Park junior school last summer because he could not come anywhere near raising or repaying a mortgage on a house anywhere in this area. He rode to and from"— The parent goes on to describe the journey which the teacher had to make in order to get to the school and then explains that, like many others, he had to give up and move away.

By treating the London allowance as coming within the pay limit of £1 plus 4 per cent. the Government are exacerbating an already appalling crisis in the London teacher service. This is creating a great deal of depression among the teachers themselves, and alarm among the parents of children attending London schools.

Other hon. Members, on other occasions, have frequently pointed out that the London teacher service is in grave danger. Its inclusion of the London allowance in the £1 plus 4 per cent. during phase 2 will mean that the Government's policy will have an even more damaging effect on the crisis situation which the London teacher service is now reaching.

In the few minutes at my disposal I wished to emphasise that point. It has application elsewhere. I believe it to be wholly wrong to include the London allowance and other geographical allowances in paragraph 113 of the code. When they re-examine the code the Government must reconsider this question. It has been put to them repeatedly, and we have never had a satisfactory answer. It is causing grave disquiet in the teach- ing profession in London and elsewhere, and, as I say, it is causing growing alarm among parents. I am sure it is no accident that letters are now beginning to come from parents as they become aware of the situation which is developing in the schools which their children attend.

I hope, therefore, that the Government will so amend the code that, in its final form, it will ensure that the London allowance can be treated as a separate matter, since its only purpose is to take account of the contrast in cost of living as between those who live and work in London and those who do not. The Minister must understand that, on getting married, teachers wish to own their own homes if they can. One constituent wrote to me to say that the house in which he lives, which he bought 10 years ago, cost him £5,000 but that that same house is now worth about £20,000, right outside the means of a London teacher dependent on the Burnham scale. I urge the Government to reconsider paragraph 113.

8.59 p.m.

Photo of Mr Reginald Prentice Mr Reginald Prentice , East Ham North

This is the latest in a rather strange sequence of debates. The House and Standing Committee H spent a great deal of time on the details of the Counter-Inflation Bill. Although the Standing Committee sat for just over two weeks, because of the number of occasions it sat and the hours it sat, it packed into that time the equivalent of approximately 11 weeks of a normal Committee stage. There were detailed and penetrating debates into the minutiae of the Bill which provides for machinery.

In terms of the policy which is to be operated by the machinery, the only opportunities for debate are the debate today on the consultative document and the debate that will follow on the code. In both cases no amendment is possible. We must accept or reject as one package a series of complex policies which will have the most serious effects upon the lives of millions of people. I register once more a protest at this undemocratic procedure.

Another feature of today's debate is that not one Conservative Member has expressed wholehearted support for the contents of the code. The degree of misery has varied from one hon. Member to the next, but there has been a great deal of it. The hon. Member for Wycombe (Mr. John Hall) told the House that he hoped that the Government would soon return to a true Conservative philosophy instead of the current policy. The hon. Member for Oldbury and Halesowen (Mr. Stokes) spoke of the agony on the Government's side of the House and hoped that there would soon be a return to competition and the forces of the free market. The hon. Member for Basingstoke (Mr. David Mitchell) described certain parts of the code as consistent with the economics of the madhouse. I shall not continue to embarrass the Government with even more quotations. There are plenty to be found if hon. Members who have not attended the debate will consult HANSARD tomorrow.

We are discussing the contrasting approach between the consultative document—the Green Paper containing the framework of the code which we shall shortly be asked to approve—and the approach of the joint statement of the Labour Party and the TUC which is mentioned in the amendment. The most enthusiastic partisan of either side should avoid claiming that either document provides a panacea. Neither answers all the questions or provides a blueprint for solving all the problems of inflation.

Inflation is an international disease affecting virtually every country in the world. No political party in the democratic world has produced a blueprint for its solution. Indeed, many countries are groping with the problems that inflation produces. The only test that I apply to the two rival approaches is to question which of them is more likely to lead towards a long-term solution of the problems with which we are grappling. I emphasise "long-term".

We are about to pass out of the freeze period into a period when more choice has to be allowed, and when there must be a greater degree of sophistication in making decisions on prices, pay or other aspects of the policy. The thesis that I want to put to the House is that the joint statement of the Labour Party and the TUC provides the framework for a beginning of a solution for these complex problems, whereas the policy outlined in the draft code will make the solution even more difficult to find.

Photo of Sir John Hall Sir John Hall , Wycombe

Can the right hon. Gentleman say whether at the meeting this afternoon the TUC accepted the joint statement?

Photo of Mr Reginald Prentice Mr Reginald Prentice , East Ham North

The joint statement was not before the meeting this afternoon. What the TUC accepted this afternoon was a statement on the economics of the situation prepared by the General Council and put before the special Congress. We are not discussing that statement now, but I warmly recommend it as desirable reading for all hon. Members opposite who would like to read a more realistic reappraisal of the problems facing the country than they are getting from the Government. The Government's policy as set out in the consultative document will make the solution more difficult, because it is essentially a divisive document and because the long-term answer to the problems of inflation can be based only on good will and consent, and on a sense in the community that we are all pulling together for mutually acceptable objectives.

I want to give the House five reasons why the policy set out in the document is likely to be divisive. In choosing these five reasons I am not talking about the prices side at all. There have been many references to prices, but I do not intend to go over that ground except to underline the point that the effects of the disillusionment and pessimism already spreading through the community, the failure of the Government to keep the cost of living steady, will undermine the policy if nothing else does. I want to concentrate on the pay side of the document and its effect on industrial relations.

First, the policy will reduce, and is intended to reduce, the share of the national product going to wages and salaries. Let the House be quite clear that that is the intention of the formula set out in the code. The arithmetic may be put like this: in a 12-months' period the formula of £1 plus 4 per cent. is likely to lead to an increase in pay, measured in money terms, and not real terms, of about 8 per cent., or just under 8 per cent.—These are the Government's own figures—while in the same period the rise in prices is unpredictable—and the Minister refused to give any estimate of what that rise would he—but on the most optimistic estimate, the estimate giving the Government more success than they will probably achieve, will be about 6 per cent., which is the figure quoted by many commentators.

That would mean an average rise of about 2 per cent. in real living standards for wage and salary earners during 12 months when the Government's strategy is based on a growth of the economy of 5 per cent. It is therefore intended that a smaller share of the national product should go in wages and salaries during this period than in previous periods. Bigger shares are to go to rents and profits; a smaller share is to go to wages and salaries.

Photo of Mr Alfred Hall-Davis Mr Alfred Hall-Davis , Morecambe and Lonsdale

Does not the right hon. Gentleman's argument presuppose that none of the benefits of the 5 per cent. increase in growth is to go to the wage packet in addition to the increase announced?

Photo of Mr Reginald Prentice Mr Reginald Prentice , East Ham North

The pay packet is to be kept within the limits of the consultative document, irrespective of the growth in the economy.

Photo of Mr Reginald Prentice Mr Reginald Prentice , East Ham North

That is the policy, and we are told that there are to be no exceptions—that incomes of all kinds are to be kept within those limits.

For many workers this will mean a drop in living standards. For instance, if the gas workers were to return to work on the assumptions of phase 2, early in April they would receive their first rise for 15 months. It would be a rise of about 8 per cent. in relation to a 15-month period during which the cost of living had gone up by 10 per cent. They would then enter upon a 12-months' period in which there could be no further rise, and they would be beginning that period two points lower in living standards than they were 15 months earlier. This policy is deliberately designed to reduce the share of the national income which goes to wage earners.

My second point is that this policy will reduce the standard of living of the low-paid relative to others. We have repeatedly heard from Ministers their pretence that this policy favours the low-paid. It does nothing of the kind. Some hon. Members opposite have recognised that. I am sure that the hon. Member for Bridgwater (Mr. Tom King) was correct to say that a policy which lays down a maximum of £1 plus 4 per cent. will be regarded by most people as entitling them to a maximum increase of £1 plus 4 per cent.

Even if there were adequate redistribution as between higher and lower-paid workers within the negotiating group the whole concept of the group does nothing about those industries which are notoriously low-paid throughout. The industries would normally be the negotiating group.

A formula which provides for the £20-a-week man a maximum rise of £1·80 and for the £100-a-week man a maximum rise of £5 will lead to bigger differentials between the two. In a series of amendments in Committee we attempted to identify areas of low pay. We identified agricultural workers, workers covered by wages councils, and women, as affected by the Equal Pay Act 1970, and we tried to safeguard the position of those workers during phase 2. Every one of our amendments to this end was rejected by the Government majority on the Committee.

My third point about the divisive nature of this policy is that the differences in pay will in any case become exaggerated as a result of the tax reliefs due to come into force as a result of last year's Finance Act. We do not know the nature of tomorrow's Budget speech, and whether the policy of last year will be modified, but unless the Chancellor produces a formula which cancels out the enormous tax reliefs for better-off people provided for in last year's Finance Act their effect will be to create even larger material differences in society than those already mentioned.

The fourth divisive point concerns the effect on industrial relations. As we discuss this situation many groups of workers have become involved in industrial action and many more are likely to become involved in the near future. I do not want to say anything which will exacerbate this situation. I speak as someone who favours a moderate approach. Such advice as I can tender may not be of any great weight. My view on these matters is always in favour of a moderate alternative.

I sat in the gallery during the special TUC meeting this morning and listened to discussions which proved how difficult it is for moderate counsel to prevail. The Government are giving less and less ground for the moderates to stand on. They are driving people into a posture which they would otherwise reject. I make a further appeal to the Secretary of State about two current disputes—the gas and the hospital disputes. What should have impressed everyone about the gas dispute is the workers' moderation and scrupulous regard for safety. The newspapers have talked of a gas strike but there has not been one. A minority of workers have been on strike; others have been on an overtime ban.

The tragedy is that during this period, when a number of suggestions for a compromise solution were put to the Government and when the ex-Chairman of the Gas Council wrote to The Times putting forward his suggestion, his letter being followed next day by a letter from Mr. David Basnett agreeing to a formula which would be acceptable to him, the Government slammed every door and produced a situation in which matters are almost bound to escalate, with all the consequences that we fear unless a solution can be found.

The same analysis applies to the hospital dispute. I missed the speech of my hon. Friend the Member for West Lothian (Mr. Dalyell), but I have been told what he said and I commend his advice to the Secretary of State. This is another dispute in which, from the beginning, the union has acted with every possible concern for patients and for health and safety. It cannot be held in limbo indefinitely.

The Secretary of State should insist on the Cabinet's giving him a chance to find a formula for a solution of these two situations of desperate urgency.

My fifth point about the divisive effects of the Government's policy is concerned with industrial relations in the longer term. When we consider the state of industrial relations we become too obsessed with strikes, and threats of strikes and other industrial action. What I fear much more as a result of the rigid, stiff-necked application of the policies of this code is that much constructive work by both sides of industry over many years will be damaged and perhaps destroyed in the coming months.

My hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) raised a very important point about the status of arbitration during this period. I hope that the Secretary of State will answer it. I know what the answer is likely to be because I raised a similar point in Committee. Arbitrators will not be allowed—or will they?—I hope that I shall be contradicted—to do an objective, detached job in the period ahead. They will be expected to do the Government's dirty work for them. What effect will that have on any remaining reputation of arbitration in this country? What effect will it have in the long term on industrial relations? What will be the effect on conciliation if conciliators no longer have any scope within which to work? What will be the effect on the future of the Whitley system in the Civil Service if the present sense of injustice and frustration affecting civil servants continues during this period without the Government's making any move to go hack to the principle of the Priestley Commission and reasonable parity with outside employment?

What will be the effect on productivity bargaining if there is to be no concession to productivity agreements or situations in which there has been an increase in productivity resulting from workers' efforts? There are to be no productivity arrangements during the freeze or phase 2, or the 12 months following the end of phase 2. If that is so, is there not a risk that we shall never return to the level of productivity arrangements which we have had in recent years? Is that good or bad for inflation? Have not we all said in the past that one answer to inflation is to encourage productivity arrangements so that people may have genuine rises in their standard of living without the cost being passed on in higher prices to the consumer? This concept is being sabotaged by the Government's policy.

For these reasons, and for many others which I could give, I suggest that the implementation of the Government's policy in phase 2 will create greater divisions in our society and make it more difficult to find the long-term answers to inflation.

The Opposition amendment refers to a socialist alternative. We use the word "socialist" deliberately and proudly. The joint statement of the Labour Party and the TUC is, I believe, a socialist statement in many respects. It is socialist in the sense that it puts forward the concept of a greater degree of Government control of the economy in the interests of all the people so that the wealth of this country is used for the good of everyone and not just for the profit of a few. It is socialist in the sense that it urges the extension of public ownership, and particularly of development land where land profiteering has been one of the most potent inflationary impulses in recent years and the Government have no shadow of policy for dealing with it. It is socialist in the sense that it demands changes in taxation policy and pensions policy which will create a more egalitarian society.

The question is asked—it has rightly been asked during this debate—what about an incomes policy? Why should there not be a place for an incomes policy in this concept? My answer is, "Yes, there should be." This country needs an incomes policy, but before talking about what kind of incomes policy it should be 1 beg the House to put this matter into perspective alongside other aspects of inflation.

The pressure of wages and salaries is only one of the inflationary pressures at work. In the composition of consumer prices in Britain in recent years wage and salary costs have amounted to about 40 per cent. of total costs. Wages and salaries are no higher in Britain today than they are in most other developed countries. They are lower than in some of them. Over the last 10 years wages and salaries have risen less quickly in Britain than in most other industrial countries, but inflation in Britain has gone ahead faster than in most other industrial countries. Therefore it is time hon. Members opposite stopped talking of wages and salaries as though they were the mainspring of our inflation. They are part of the story, but only part of the story. Their role is exaggerated because of the desperate search by the Conservative Government and the Conservative Party for a scapegoat for their own failures during recent years.

Photo of Mr Peter Rees Mr Peter Rees , Dover

Of course one understands the right hon. Gentleman's argument that wages and salaries are only one factor, but if it is possible to treat them by means of a voluntary policy, as I understand his party suggests, why is it not possible to treat other factors by means of a voluntary policy?

Photo of Mr Reginald Prentice Mr Reginald Prentice , East Ham North

The hon. and learned Member has anticipated a point I am about to make.

I want to add one other argument to those which I have just been putting to the House. Not only are wages and salaries to be regarded as simply a part of the pressure of inflation; trade union policy is also only one aspect of wages and salary policy. Less than one-half of the people at work belong to trade unions, and even of those who do belong many have their wages and salaries fixed by all sorts of processes which have nothing to do with trade union policy. Promotion, rearrangement of the work force—there are all kinds of reasons of that sort why people get increases in their wages and salaries. It is not simply a matter of trade union demands. Trade union demands are part of the picture, but only part of it.

The fact that trade union demands are part of the picture has been acknowledged by the TUC consistently in recent months. In his speech this morning Mr. Feather repeated to the TUC what he has said so many times before. He acknowledged that the TUC has a role to play in fighting inflation; trade union leaders, he said, went to one meeting after another with Ministers to try to find a way towards a joint policy, and this was frustrated by the Government and not by them. He said that they were prepared to talk again if there were a reasonable basis for success in those talks.

I am asked why policy should be voluntary and not compulsory. My answer is that past experience of statutory incomes policies in this and other countries has shown that such statutory policies do not work. Policies that work—and even these are difficult—are based on voluntary acceptance and consent. Even if the consent is obtained—even if voluntary acceptance is there—it is still terribly difficult to get an incomes policy to work. That should be frankly acknowledged on all sides.

What one would be asking people to do is to give up part of their bargaining power, to refrain deliberately from pressing their bargaining position to a conclusion. This is extremely difficult. Nevertheless, I believe that the basic good will exists in the trade union movement to try to do this but only on the understanding that other policies are followed that make it possible.

Photo of Mr Geoffrey Howe Mr Geoffrey Howe , Reigate

I follow the right hon. Gentleman's argument, but I should like him to face the historical facts. In 1948, when there was a complete statutory control of prices, was there not an agreement on a voluntary incomes policy with the then Labour Government? Was there not a similar agreement with his right hon. and noble Friend Lord George-Brown in 1965, again on a voluntary policy, for the control of wages, and was there not, finally, a solemn and binding agreement arrived at on 18th June 1969 for the voluntary control of wages? Did not each one of those policies lead either to inflation or, in 1965, to the need to introduce a statutory policy? Does not that show the fraility of the right hon. Gentleman's argument?

Photo of Mr Reginald Prentice Mr Reginald Prentice , East Ham North

I think the 1969 episode is a bit misplaced. The 1948 experience was a voluntary policy on incomes that worked very well for a time and was upset by inflationary pressures caused by external events, including massive rearmament throughout the world following the Korean war. One sees from the declaration of intent in 1964 and the events that followed it that the success was only partial. Government Ministers would have been glad to have had that degree of success instead of the colossal failure they have had in dealing with inflation in the last two-and-a-half years. If they could get back to the relatively moderate inflation of the period of Labour Government they would be glad to do so.

I acknowledge what the right hon. and learned Gentleman said. A voluntary policy has never yet been a complete success in this or any other country. That is the basis on which I started my speech. My thesis is that the policy set out in the code will make it more difficult to achieve an agreed long-term policy, whereas the policy set out in the joint statement between the TUC and the Labour Party begins to provide the basis for a better chance of doing so. I make no claim for it beyond that, but the people in the country who are sick and tired of the Government's economic record will look to us for this kind of lead.

In the last two-and-a-half years we have suffered the worst unemployment since the 1930s, the worst industrial relations since the General Strike period of 1926 and a far higher rate of inflation than that suffered in other countries or in Britain under previous Governments. That is a massive record of failure, and the people are entitled to a change. The joint statement of the TUC and the Labour Party points the way towards that change.

9.28 p.m.

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

The right hon. Member for East Ham, North (Mr. Prentice) started by giving some figures about the gas workers. Between October 1970 and October 1972 the increase in the average earnings of gas workers was about 26·4 per cent., and the increase in the retail price index was 17·9 per cent. I am sure that the right hon. Gentleman did not mean to mislead the House.

It is also important to recognise that the stage 2 policies do not interfere with the due date of the gas workers' agreement, so that they will get an increase from 1st January 1974, whatever happens, without prejudice to any adjustment of anomalies and comparabilities which the Government said could take place in stage 3.

This is a debate about the consultative document containing the draft code for stage 2. It was asked for by all sides of the House so that detailed points could be made and so that this House could take part in the process of consultation on the draft code. I felt that sometimes during today's debate it has been difficult to realise this. It is true that my hon. Friends have used the debate for this purpose and have made points of detail, some of which I shall try to answer. I do not think I can answer them all in the time that is available to me, but certainly the points of detail made on both sides of the House will be taken account of in this process of consultation. Whether I reply to them or not, they will be carefully considered by the Government because this is the whole purpose of the debate.

We had from the Labour benches a mixture of denunciation of past iniquities of the Conservative Government and a marked silence about the previous policy pursued by the Labour Government. We had what can only be described as a trailer of the Budget debate and the economic debates which are to follow it, and we have also had a few points of detail.

I turn to deal first with some of the specific points made by my hon. Friends about the draft code. First, in regard to paragraphs 36 and 40 on the question of price reductions, my hon. Friend the Member for Wycombe (Mr. John Hall) pointed out that the speed at which price reductions could be made relative to a fall in raw material costs as reflected in prices might be difficult to work out in certain circumstances. I agree that this depends on the circumstances of each particular case. If the fall in the costs involved, whether in terms of raw material prices or others, is part of a long-term trend, the indications would be that prices should be reduced at a relatively early date. If the circumstances are different, this clearly is a matter which will be open for discussion between the industry or undertaking concerned and the Price Commission.

Very much the same point was made by my hon. Friend the Member for Bosworth (Mr. Adam Butler), who pointed out that it was not necessarily correct to pass on cost savings immediately in projects requiring a long period of development and a slow build-up of sales. This is a similar problem to that which is dealt with in another paragraph of the code; namely, the question of long-term contracts, particularly in the construction industry.

The answer is that the extent to which cost savings can be passed on in cases of that sort must be something which is required to be discussed with the Price Commission by the industry or undertaking concerned, because, clearly, in such circumstances it would not be right to expect an immediate return in prices, and, equally, if the profit margin indications were that the cost increase was going to lead to a movement above the profit norm, it would be equally correct to assume a relatively fast decrease in the prices concerned.

My hon. Friend the Member for Bosworth also said that we were forcing, through the use of productivity offset, improvements in productivity in industry. He and other hon. Friends approved of this effect of the method of price control, but he pointed out that many industries would not be likely to do very much more because of the voluntary effort they had already made during the period of CBI voluntary price restraint and would not be encouraged to do more than they had to do. I do not altogether accept that over a relatively short period of stage 2, and it is worth making the point that we are discussing the code for stage 2.

The same point must also be borne in mind by my hon. Friend the Member for Wycombe, who suggested that the choice of a base date for those industries which co-operated in the CBI voluntary price restraint was a little unfair. My right hon. and learned Friend the Minister for Trade and Consumer Affairs referred to this matter and paid tribute to the efforts of the CBI to hold down manufacturing prices, which had a significant effect during the year of voluntary restraint. But during that year some industries showed what my right hon. Friends and I regarded as a welcome increase from very low profit margins, and the choice of a base date is the fairest which can be selected in the circumstances of the stage 2 code and the stringency which we are trying to put on price control.

I accept that the effect of a 50 per cent. productivity offset is uneven. My hon. Friend the Member for Bosworth and others pointed out that it was likely to cause difficulty between different manufacturing industries and between manufacturing industry as a whole and service industries. This is a matter on which we are now consulting those concerned. But again I remind the House that we are discussing the stage 2 code.

On the pay side there are no new productivity agreements allowed during this period of stage 2. That is for the obvious reason that productivity agreements can be used as a method of breaching a policy of this kind. This was a point repeatedly made during our talks in the summer and autumn by union representatives as well as by representatives of the CBI.

Much the same reason applies to the exclusion during stage 2 of depreciation when calculating allowable costs. Just as productivity agreements could be used to provide too big a loophole in the policy, the allowance of depreciation as part of the allowable costs could have the same effect. These are both matters for the Pay Board and the Price Commission in advising the Government on their future consultations with both sides of industry after consultation with, I hope, the unions as well as with representatives of management and after discussion by this House of the criteria to be set up for our stage 3 policies.

I agree with my hon. Friend the Member for Morecambe and Lonsdale (Mr. Hall-Davies) that a flat-rate wage increase would be even better for the lower-paid than the present formula. But it is extremely difficult to apply to the rather complex pay structures of our industrial system, and it is almost impossible to apply a flat-rate increase without the agreement of the representatives of both management and the work people concerned.

We did not find such agreement in our talks with the unions and the CBI. This was partly because the trade union representatives at those talks found it difficult to agree among themselves about how a flat-rate increase could be applied equitably to the wage structures in the various industries that they represented.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

My right hon. Friend the Member for East Ham, North (Mr. Prentice) asked about the hospital workers. Might one possible way out be to increase the flat-rate element to be offered in the near future?

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

The Pay Board will be able to take this matter into consideration in consultation with the unions and the employers concerned in preparing its advice to the Government for stage 3. I must make it clear that the Government are not prepared to do this in stage 2.

I do not altogether accept the point made by the hon. Gentleman and by my hon. Friend the Member for Bridgwater (Mr. Tom King) that paragraphs 105 and 106 need cause all that much difficulty in the short period of stage 2. Indeed, I do not agree with the hon. Member for Bedwellty (Mr. Kinnock), who appeared to think that incremental scales are the perquisite of the highly paid. I do not think that members of the Civil Service unions or of the Transport Salaried Staffs Association would agree with his definition. I think that even the hon. Gentleman would agree that, despite the relatively short duration of stage 2, we must allow for both promotion and regrading, as a number of the unions concerned have been quick to point out and, indeed, are negotiating about at this moment.

I should also point out to the hon. Member for Bedwellty that expense accounts are not unlimited in stage 2. Company executives are not the only employees who have, and are entitled to have, expenses reimbursed. The code is clear on that point.

My hon. Friend the Member for Basingstoke (Mr. David Mitchell)—I apologise for not being present to hear his speech—made a point on paragraph 24 of the Green Paper. I remind him that we are discussing the code for stage 2 only for both prices and pay. I remind him, too, that we are consulting those concerned. I hope that he will agree that inflation is a matter partly of expectation and that it can be fed by carrying into price increases unnecessarily high estimates of possible cost increases.

The particular point to which my hon. Friend referred is partly covered by paragraph 27, which deals with accounting methods of stock valuation. It ensures that the value of stocks must be taken into account on the ordinary accounting methods used in the past. Paragraph 24 allows a company to apply for price increases which were justified by no increases in costs. So a company can take account of the increased costs of replacing stocks. As a continuing process this seems to meet my hon. Friend's point. It is basically extremely important to provide for increases in working capital arising out of increased turnover. This is particularly important for small companies and perhaps even more important for those companies dealing in goods which have a naturally slow rate of turnover. We have discussed these points with those most affected and our discussions are continuing.

My hon. Friend the Member for Truro (Mr. Dixon) specifically mentioned banks. We are in the process of discussing with the banks the application to them of the policy and the code. I am extremely grateful to my hon. Friend for his interesting suggestion, which we shall certainly bear in mind in our continuing discussions.

The hon. Member for Cornwall, North (Mr. Pardoe) put forward an idea which could be described as a special threshold agreement based on food prices, and suggested that it should be introduced in stage 2. This matter was discussed with the unions during the summer, and I think that we can discuss it again, since I very much hope that the unions will agree to be consulted by the Government on the stage 3 policies for both the pay and price codes, including a discussion on rectification of anomalies and relativities which the Pay Board will be examining.

I think that for the convenience of the House I should make it plain that for the third stage of their policy the Government will be revising the code, and, before laying any changes in it before Parliament, will again, as at this stage, consult those concerned on both sides of industry and commerce.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

Would the right hon. Gentleman like to explain on what occasion and what time these discussions will take place, in view of the decision taken by the TUC? Is he not on this occasion, as he was during the debates on the Industrial Relations Bill, living in a totally Walter Mitty land, the trade unions having decided what policy they are going to adopt?

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

I shall come to the point about the TUC conference, but, judging by the way in which it was conducted, it is not this side of the House that is living in Walter Mitty land.

The Government will seek the help of the Pay Board in its advisory capacity on problems of relativities and anomalies, especially those arising out of the standstill. The aim will be to find ways in which progress can be made in dealing with these problems and with other matters such as productivity and restructuring within the total amount available for pay increases in the third stage. I think that the suggestion made by the hon. Member for Cornwall, North could properly be discussed in this context and be examined by the Pay Board should that be deemed the right thing to do.

Photo of Mr Tony Benn Mr Tony Benn , Bristol South East

These are difficult arguments to follow. I wonder whether the right hon. Gentleman would give the House a better indication of when he foresees the end of phase 2 and the beginning of phase 3. Is it July, as has been hinted at in some newspapers, or is it the autumn? When is it likely to be? I ask that because it is impossible to talk about phase 3 when one has no idea of the date on which, if ever, it will come in.

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

My right hon. Friend the Prime Minister made it clear that stage 2 would last until the autumn, and autumn is likely to come at the normal time. I shall not get involved in anything more precise than that.

We have also made it quite plain that all these matters can be discussed with the Pay Board. The chairman has been chosen, I hope very soon to announce the deputy chairman to deal with future relativities, and the outside secretariat is actually working.

Our policies envisage a return to the market forces of competition, as paragraph 7 of the Green Paper makes clear. It is nonsense for right hon. and hon. Gentlemen opposite to say that we are destroying the forces of competition in favour of a Corporate State, or any other esoteric organisation. I would point out to my hon. Friend who referred to paragraph 7(iii) that we are using market forces and competition as part of our price control system. We are, as my right hon. and learned Friend made clear, taking a stricter control of the few large companies and other price leaders in industry. Whatever the hon. Member for Bedwellty says, this will lead to a general steadying of prices by the force of competition. Hon. Members on both sides know that this is true.

The hon. Member for West Lothian (Mr. Dalyell) asked about the numbers required in the agencies in this context. This is the point. It will not require a large and cumbersome bureaucracy, simply because of the intention to keep control largely through the market leaders, as my right hon. and learned Friend pointed out. The House will be able to judge by the quarterly reports which both agencies will have to put before the House.

Photo of Mr Tam Dalyell Mr Tam Dalyell , West Lothian

Will this still be done by 700 people?

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

This is the present intention of the Government. If variation is required, it will be seen through the quarterly reports, and we can adjust our policies accordingly. [Laughter.] Hon. Members laugh, but they were complaining that we were not being flexible enough. When I talk about a change and adjustment in policy in phase 3, they seem to regard this as being too flexible. They should make up their minds.

I would point out to the hon. Member for Liverpool, Walton (Mr. Heifer) that there are no special cases in phase 2, but that phase 2 does not, as he implied, last for three years. He also said that there was nothing, or could he nothing, between the laissez-faire policies of the past and the extreme Socialism that he and some of his Friends would like to see. I would suggest to him and to other hon. Members who have made this point that they look at what totally unrestrained collective bargaining has done to the lower-paid industries in the past. We have had a system of unrestrained collective bargaining for some time, and the lower-paid industries have remained the lower-paid industries throughout that period. The House knows well why that is so, that it is the power of the stronger unions that has kept these others down in the rat race.

Hon. and right hon. Members opposite cannot seriously be suggesting that the stage 2 increases for the gas workers, for example, or for the National Health Service ancillaries are not larger in proportion to the stage 2 increases for any highly-paid group which has yet to negotiate than they would have been before the standstill and without stage 2.

The hon. Member for Walton gave the game away. He said that the Labour Party, because it is the creation of the trade union movement, the political wing of that movement, must always do what the unions say—

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

That is what the hon. Member meant. He suggested that any offer made by the unions was an offer that the Labour Party could not refuse. Certainly that has been the experience of right hon. Members opposite in Government over both industrial relations legislation and incomes policy.

Photo of Mr Eric Heffer Mr Eric Heffer , Liverpool, Walton

The right hon. Gentleman knows full well that I did not say that the Labour Party must do what the trade unions want. [HON. MEMBERS: "Oh."] I am amazed at all the people who were not in the Chamber at the time knowing what I said. The Secretary of State should not attribute to hon. Members things that they did not say. HANSARD tomorrow will make the position clear. I made it clear that we were formed in association with the trade union movement, but that we were not a trade union party, never have been and never would be.

Photo of Mr Maurice Macmillan Mr Maurice Macmillan , Farnham

I think that the hon. Member made the position clear earlier but I am not sure that he has not now made it more confused. At any rate, he said—and I think he will agree that I am not misquoting him—that there was no question of the tail wagging the dog. Judging by what went on today, there is not much question of the tail knowing how to wag itself. At the special trade union conference today, there was a call for a one-day political strike, and as a result of a procedural muddle there was no agreement on a decision or on how to help such a strike. There was no agreement except on not to set up an organisation for doing so but there was agreement to give help in some other way. The mover of the motion at the TUC pointed out that the strikes taking place now were against Government policy and could be construed as political strikes. Those were the truest words at that conference.

The agreement between the Labour Party and the TUC, which we are supposed to be considering as a replacement of the Government's policy, as set out in the consultative document, contains a-number of examples of where the Opposition in future, as they did in the past, will commit themselves to doing what the more militant elements in the trade union movement want them to do. They have committed themselves to repealing the Industrial Relations Act, just as they were pushed out of their own legislation in the last Parliament. They are pretending that there can be a viable policy for prices and incomes with no control of wages.

I remind the Opposition that prices were not rising so fast last summer, but wages were. The hon. Member for Enfield, East (Mr. Mackie) has suggested that we should have an early warning system for food prices; but such a system for monitoring prices is set out in the consultative document. It is far more effective than the Labour Party's policy. It made no attempt to control food prices. We are controlling the prices of processed, semi-processed and manufactured foods, and we are monitoring any cost increases very carefully.

The right hon. Member for Bristol, South-East (Mr. Benn) and others have suggested that there is only a very slender connection between wage increases and price increases. I remind him of the figures. In May 1969 earnings were rising at an average of 6·4 per cent. a year; by October 1970 they were going up at an average of 13·5 per cent.; in June 1970 prices were rising at 5·9 per cent. a year; by the time the results of the Labour

Government's wage explosion had worked their way through, in June 1971 prices were going up at 10·3 per cent. a year.

The right hon. Gentleman made a great point about profits. When the Labour Government took office in October 1964 the annual gross trading profits as a percentage of national income was 16·9 per cent.; by June 1970 this had gone down to 13·3 per cent. No wonder there was an inadequate rate of growth; no wonder the average rate of growth was only 2·1 per cent. If the right hon. Gentleman asks what policy is likely to succeed, I suggest that it is one based on a high rate of growth and an expanding economy and not on the principles and policies that he has put forward, which demonstratively failed in the past and would fail again in the future.

Question put That the amendment be made:—

The House divided: Ayes 260, Noes 289.

Division No. 76.]AYES[10.0 p.m.
Abse, LeoCrossman, Rt. Hn. RichardGrant, George (Morpeth)
Allaun, Frank (Salford, E.)Cunningham, G. (Islington, S.W.)Grant, John D. (Islington, E.)
Archer, Peter (Rowley Regis)Cunningham, Dr. J. A. (Whitehaven)Griffiths, Eddie (Brightside)
Armstrong, ErnestDalyell, TamGriffiths, Will (Exchange)
Ashley, JackDavidson, ArthurHamilton, James (Bothwell)
Ashton, JoeDavies, Denzil (Llanelly)Hamilton, William (Fife, W.)
Atkinson, NormanDavies, G. Elfed (Rhondda, E.)Hamling, William
Bagier, Gordon A. T.Davies, Ifor (Gower)Hannan, William (G'gow, Maryhill)
Barnes, MichaelDavis, Clinton (Hackney, C.)Hardy, Peter
Barnett, Guy (Greenwich)Davis, Terry (Bromsgrove)Harrison, Walter (Wakefield)
Barnett, Joel (Heywood and Royton)Deakins, EricHart, Rt. Hn. Judith
Baxter, Williamde Freitas, Rt. Hn. Sir GeoffreyHattersley, Roy
Benn, Rt. Hn. Anthony WedgwoodDelargy, HughHealey, Rt. Hn. Denis
Bennett, James (Glasgow, Bridgeton)Dell, Rt. Hn. EdmundHeffer, Eric S.
Bidwell, SydneyDoig, PeterHilton, W. S.
Bishop, E. S.Dormand, J. D.Horam, John
Blenkinsop, ArthurDouglas, Dick (Stirlingshire, E.)Houghton, Rt. Hn. Douglas
Boardman, H. (Leigh)Douglas-Mann, BruceHuckfield, Leslie
Booth, AlbertDriberg, TomHughes, Rt. Hn. Cledwyn (Anglesey)
Bottomley, Rt. Hn. ArthurDuffy, A. E. P.Hughes, Mark (Durham)
Bradley, TomDunn, James A.Hughes, Robert (Aberdeen, N.)
Broughton, Sir AlfredDunnett, JackHughes, Roy (Newport)
Brown, Robert C. (N'c'tle-u-Tyne, W.)Eadie, AlexHunter, Adam
Brown, Hugh D. (G'gow, Provan)Edelman, MauriceIrvine, Rt. Hn. Sir Arthur (Edge Hill)
Brown, Ronald (Shoreditch & F'bury)Edwards, Robert (Bilston)Janner, Greville
Buchan, NormanEdwards, William (Merioneth)Jay, Rt. Hn. Douglas
Buchanan, Richard (G'gow, Sp'burn)Ellis, TomJeger, Mrs. Lena
Butler, Mrs. Joyce (Wood Green)English, MichaelJenkins, Hugh (Putney)
Callaghan, Rt. Hn. JamesEvans, FredJenkins, Rt. Hn. Roy (Stechford)
Campbell, I. (Dunbartonshire, W.)Ewing, HarryJohn, Brynmor
Cant, R. B.Faulds, AndrewJohnson, Carol (Lewisham, S.)
Carmichael, NeilFernyhough, Rt. Hn. E.Johnson, James (K'ston-on-Hull, W.)
Carter, Ray (Birmingh'm, Northfield)Fisher, Mrs. Dorls(B'ham,Ladywood)Johnson, Walter (Derby, S.)
Carter-Jones, Lewis (Eccles)Fitch, Alan (Wigan)Jones, Barry (Flint, E.)
Castle, Rt. Hn. BarbaraFletcher, Raymond (Ilkeston)Jones, Dan (Burnley)
Clark, David (Colne Valley)Fletcher, Ted (Darlington)Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)
Cocks, Michael (Bristol, S.)Foot, MichaelJones, Gwynoro (Carmarthen)
Cohen, StanleyFord, BenJones, T. Alec (Rhondda, W.)
Coleman, DonaldForrester, JohnJudd, Frank
Concannon, J. D.Fraser, John (Norwood)Kaufman, Gerald
Corbet, Mrs. FredaFreeson, ReginaldKelley, Richard
Cox, Thomas (Wandsworth, C.)Galpern, Sir MyerKerr, Russell
Crawshaw, RichardGarrett, W. E.Kinnock, Neil
Cronin, JohnGinsburg, David (Dewsbury)Lambie, David
Crosland, Rt. Hn. AnthonyGourlay, HarryLamborn, Harry
Lamond, JamesMurray, Ronald KingSmall, William
Latham, ArthurOakes, GordonSmith, John (Lanarkshire, N.)
Lawson, GeorgeOgden, EricSpearing, Nigel
Leadbitter, TedO'Halloran, MichaelSpriggs, Leslie
Lee, Rt. Hn. FrederickO'Malley, BrianStallard, A. W.
Leonard, DickOram, BertStewart, Rt. Hn. Michael (Fulham)
Lestor, Miss JoanOrbach, MauriceStoddart, David (Swindon)
Lewis, Ron (Carlisle)Orme, StanleyStonehouse, Rt. Hn. John
Lipton, MarcusOswald, ThomasStrang, Gavin
Loughlin, CharlesPadley, WalterStrauss, Rt. Hn. G. R.
Lyon, Alexander W. (York)Palmer, ArthurSummerskill, Hn. Dr. Shirley
Lyons, Edward (Bradford, E.)Parker, John (Dagenham)Swain, Thomas
Mabon, Dr. J. DicksonParry, Robert (Liverpool, Exchange)Thomas,Rt.Hn.George (Cardiff,W.)
McBride, NeilPavitt, LaurieThomas, Jeffrey (Abertillery)
McCartney, HughPeart, Rt. Hn. FredTinn, James
McElhone, FrankPendry, TomTomney, Frank
McGuire, MichaelPerry, Ernest G.Torney, Tom
Mackenzie, GregorPrentice, Rt. Hn. Reg.Tuck, Raphael
Mackie, JohnPrescott, JohnUrwin, T. W.
Mackintosh, John P.Probert, ArthurVarley, Eric G.
Maclennan, RobertRankin, JohnWaimwright, Edwin
McMillan, Tom (Glasgow, C.)Reed, D. (Sedgefield)Walden, Brian (B'm'ham, All Saints)
McNamara, J. KevinRees, Merlyn (Leeds, S.)Walker, Harold (Doncaster)
Mahon, Simon (Bootle)Rhodes, GeoffreyWallace, George
Marks, KennethRichard, IvorWatkins, David
Marsden, F.Roberts, Albert (Normanton)Weitzman, David
Marshall, Dr. EdmundRoberts,Rt.Hn.Goronwy( Caernarvon)Wellbeloved, James
Mason, Rt. Hn. RoyRobertson, John (Paisley)Wells, William (Walsall, N.)
Mayhew, ChristopherRoderick, Caerwyn E.(Brc'n&R'dnor)White, James (Glasgow, Pollok)
Meacher, MichaelRodgers, William (Stockton-on-Tees)Whitehead, Phillip
Mellish, Rt. Hn. RobertRoper, JohnWhitlock, William
Mendelson, JohnRose, Paul B.Willey, Rt. Hn. Frederick
Mikardo, IanRoss, Rt. Hn. William (Kilmarnock)Williams, Alan (Swansea, W.)
Millan, BruceRowlands, TedWilliams, Mrs. Shirley (Hitchin)
Miller, Dr. M. S.Sandelson, NevilleWilson, Alexander (Hamilton)
Milne, EdwardSheldon, Robert (Ashton-under-Lyne)Wilson, Rt. Hn. Harold (Huyton)
Mitchell, R. C. (S'hampton, Itchen)Shore, Rt. Hn. Peter (Stepney)Wilson, William (Coventry, S.)
Molloy, WilliamShort, Mrs. Renée (W'hampton,N.E.)Woof, Robert
Morgan, Elystan (Cardiganshire)Silkin, Rt. Hn. John (Deptford)
Morris, Alfred (Wythenshawe)Silkin, Hn. S. C. (Dulwich)TELLERS FOR THE AYES:
Morris, Charles R. (Openshaw)Sillars, JamesMr. John Golding and
Morris, Rt. Hn. John (Aberavon)Silverman, JuliusMr. Joseph Harper.
Moyle, RolandSkinner, Dennis
Mulley, Rt. Hn. Frederick
NOES
Adley, RobertCarlisle, MarkFletcher-Cooke, Charles
Alison, Michael (Barkston Ash)Carr, Rt. Hn. RobertFookes, Miss Janet
Allason, James (Hemel Hempstead)Cary, Sir RobertFortescue, Tim
Amery, Rt. Hn. JulianChannon, PaulFoster, Sir John
Archer, Jeffrey (Louth)Chapman, SydneyFowler, Norman
Astor, JohnChataway, Rt. Hn. ChristopherFox, Marcus
Atkins, HumphreyChichester-Clark, R.Fraser,Rt.Hn.Hugh(St'fford & Stone)
Awdry, DanielChurchill, W. S.Fry, Peter
Baker, Kenneth (St. Marylebone)Clark, William (Surrey, E.)Galbraith, Hn. T. G. D.
Baker, W. H. K. (Banff)Clarke, Kenneth (Rushcliffe)Gardner, Edward
Batsford, BrianCockeram, EricGibson-Watt, David
Beamish, Col. Sir TuftonCooke, RobertGilmour, Ian (Norfolk, C.)
Bell, RonaldCoombs, DerekGilmour, Sir John (Fife, E.)
Bennett, Sir Frederic (Torquay)Cooper, A. E.Glyn, Dr. Alan
Bennett, Dr. Reginald (Gosport)Cormack, PatrickGoodhart, Philip
Benyon, W.Costain, A. P.Goodhew, Victor
Bitten, JohnCritchley, JulianGorst, John
Biggs-Davison, JohnCrouch, DavidGower, Raymond
Blaker, PeterCrowder, F. P.Grant, Anthony (Harrow, C.)
Boardman, Tom (Leicester, S.W.)d'Avigdor-Goldsmid, Sir HenryGray, Hamish
Body, RichardDean, PaulGreen, Alan
Boscawen, Hn. RobertDeedes, Rt. Hn. W. F.Grieve, Percy
Bossom, Sir CliveDigby, Simon WingfieldGriffiths, Eldon (Bury St. Edmunds)
Bowden, AndrewDixon, PiersGrylls, Michael
Braine, Sir BernardDodds-Parker, Sir DouglasGummer, J. Selwyn
Bray, RonaldDrayson, G. B.Gurden, Harold
Brewis, JohnDykes, HughHall, Miss Joan (Keighley)
Brinton, Sir TattonEden, Rt. Hn. Sir JohnHall, John (Wycombe)
Brocklebank-Fowler, ChristopherEdwards, Nicholas (Pembroke)Hall-Davis, A. G. F.
Brown, Sir Edward (Bath)Elliot, Capt. Walter (Carshalton)Hamilton, Michael (Salisbury)
Bruce-Gardyne, J.Elliott, R. W. (N'c'tle-upon-Tyne,N.)Hannam, John (Exeter)
Bryan, Sir PaulEmery, PeterHarrison, Brian (Maldon)
Buchanan-Smith, Alick (Angus,N&M)Eyre, ReginaldHaselhurst, Alan
Buck, AntonyFarr, JohnHastings, Stephen
Bullus, Sir EricFell, AnthonyHavers, Sir Michael
Burden, F. A.Fenner, Mrs. PeggyHawkins, Paul
Butler, Adam (Bosworth)Fidler, MichaelHay, John
Campbell, Rt. Hn. G. (Moray & Nairn)Fisher, Nigel (Surbiton)Hayhoe, Barney
Hicks, RobertMaxwell-Hyslop, R. J.Shaw, Michael (Sc'b'gh & Whitby)
Higgins, Terence L.Mills, Peter (Torrington)Shelton, William (Clapham)
Hlley, JosephMiscampbell, NormanShersby, Michael
Hill, John E. B. (Norfolk, S.)Mitchell,Lt.-Col.C.( Aberdeenshire,W)Simeons, Charles
Hill, S. James A.(Southampton,Test)Mitchell, David (Basingstoke)Sinclair, Sir George
Holland, PhilipMoate, RogerSkeet, T. H. H.
Holt, Miss MaryMolyneaux, JamesSmith, Dudley (W'wick & L'mington)
Hordern, PeterMoney, ErnieSoref, Harold
Hornby, RichardMonks, Mrs. ConnieSpeed, Keith
Hornsby-Smith,Rt.Kn.Oame PatriciaMontgomery, FergusSpence, John
Howe, Rt. Hn. Sir GeoffreyMore, JasperSproat, Iain
Howell, David (Guildford)Morgan, Geraint (Denbigh)Stainton, Keith
Howell, Ralph (Norfolk, N.)Morgan-Giles, Rear-Adm.Stanbrook, Ivor
Hunt, JohnMorrison, CharlesStewart-Smith, Geoffrey (Belper)
Iremonger, T. L.Mudd, DavidStodart, Anthony (Edinburgh. W.)
Irvine, Bryant Godman (Rye)Murton, OscarStoddart-Scott, Col. Sir M.
James, DavidNabarro, Sir GeraldStokes, John
Jenkin, Patrick (Woodford)Neave, AireyStuttaford, Dr. Tom
Jennings, J. C. (Burton)Nicholls, Sir HarmarSutcliffe, John
Jessel, TobyNoble, Rt. Hn. MichaelTapsell, Peter
Johnson Smith, G. (E. Grinstead)Nott, JohnTaylor, Sir Charles (Eastbourne)
Jones, Arthur (Northants, S.)Onslow, CranleyTaylor,Edward M.(G'gow,Cathcart)
Jopling, MichaelOppenheim, Mrs. SallyTaylor, Frank (Moss Side)
Joseph, Rt. Hn. Sir KeithOrr. Capt. L. P. S.Taylor, Robert (Croydon, N.W.)
Kaberry, Sir DonaldOwen, Idris (Stockport, N.)Tebbit, Norman
Kellett-Bowman, Mrs. ElainePage, Rt. Hn. Graham (Crosby)Temple, John M.
Kilfedder, JamesPage, John (Harrow, W.)Thatcher, Rt. Hn. Mrs. Margaret
King, Tom (Bridgwater)Parkinson, CecilThomas, John Stradling (Monmouth)
Kinsey, J. R.Peel, Sir JohnThomas, Rt. Hn. Peter (Hendon, S.)
Kirk, PeterPercival, IanThompson, Sir Richard (Croydon. S.)
Kitson, TimothyPeyton, Rt. Hn. JohnTrafford, Dr. Anthony
Knight, Mrs. JillPink, R. BonnerTrew, Peter
Knox, DavidPounder, RaftonTugendhat, Christopher
Lambton, LordPowell, Rt. Hn. J. EnochTurton, Rt. Hn. Sir Robin
Lamont, NormanPrice, David (Eastleigh)Vaughan, Dr. Gerard
Lane, DavidPrior, Rt. Hn. J. M. L.Vickers, Dame Joan
Le Marchant, SpencerProudfoot, WilfredWaddington, David
Lewis, Kenneth (Rutland)Pym, Rt. Hn. FrancisWalder, David (Clitheroe)
Lloyd, Rt.Hn. Geoffrey (Sut'nC'field)Raison, TimothyWalker, Rt. Hn. Peter (Worcester)
Lloyd, Ian (P'tsm'th, Langstone)Ramsden, Rt. Hn. JamesWalker-Smith, Rt. Hn. Sir Derek
Longden, Sir GilbertRawlinson, Rt. Hn. Sir PeterWalters, Dennis
Loveridge, JohnRedmond, RobertWard, Dame Irene
Luce, R. N.Reed, Laurance (Bolton, E.)Warren, Kenneth
McAdden, Sir StephenRees, Peter (Dover)Wells, John (Maidstone)
MacArthur, IanRees-Davies, W. R.White, Roger (Gravesend)
McCrindle, R. A.Rhys Williams, Sir BrandonWiggin, Jerry
McLaren, MartinRidley, Hn. NicholasWilkinson, John
Maclean, Sir FitzroyRidsdale, JulianWinterton, Nicholas
Macmillan, Rt.Hn. Maurice (Farnham)Rippon, Rt. Hn. GeoffreyWolrige-Gordon, Patrick
McNair-Wilson, MichaelRoberts, Michael (Cardiff, N.)Wood, Rt. Hn. Richard
McNair-Wilson, Patrick (New Forest)Roberts, Wyn (Conway)Woodhouse, Hn. Christopher
Maddan, MartinRodgers, Sir John (Sevenoaks)Woodnutt, Mark
Madel, DavidRossi, Hugh (Hornsey)Worsley, Marcus
Maginnis, John E.Rost, PeterWylie, Rt. Hn. N. R.
Marples, Rt. Hn. ErnestRoyle, AnthonyYounger, Hn. George
Marten, NeilRussell, Sir Ronald
Mather, CarolSt. John-Stevas, Norman
Maude, AngusSandys, Rt. Hn. D.TELLERS FOR THE NOES
Maudling, Rt. Hn. ReginaldScott, NicholasMr. Walter Clegg and
Mawby, RayScott-Hopkins, JamesMr. Bernard Weatherill
Question accordingly negatived.
Main Question put and agreed to.
Resolved,
That this House takes note of the Consultative Document on the Price and Pay Code (Command Paper No. 5247).